COMMISSION STAFF WORKING DOCUMENT CONVERGENCE REPORT 2026 Accompanying the document REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL CONVERGENCE REPORT 2026 (prepared in accordance with Article 140(1) of the Treaty of the Functioning of the European Union
Date: 2026-06-24
Institutions: Directorate-General for Economic and Financial Affairs, European Commission
Subjects: Czechia, Economic and Monetary Union, Hungary, Poland, Romania, Sweden, convergence criteria, euro, euro area, price stability

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 24.6.2026  SWD(2026) 585 final  COMMISSION STAFF WORKING DOCUMENT CONVERGENCE REPORT 2026 Accompanying the document REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL CONVERGENCE REPORT 2026 (prepared in accordance with Article 140(1) of the Treaty of the Functioning of the European Union {COM(2026) 585 final}  
 
 
European Commission 

Directorate-General for Economic and Financial Affairs 

Convergence Report 

2026 

EUROPEAN ECONOMY 

 
 
 
 
ABBREVIATIONS 

Member States 

Czechia 
Hungary 
Poland 
Romania 
Sweden 

CZ 
HU 
PL 
RO 
SE 
EA-21  Euro area, 21 Member States  
EA-20   Euro area, 20 Member States before 2026 
EA-19   Euro area, 19 Member States before 2023 
EA-18  Euro area, 18 Member States before 2015 
EA-17    Euro area, 17 Member States before 2014 
EU-28  European Union, 28 Member States 
EU-27  European  Union,  27  Member  States  before  July  2013  (i.e.  EU-28  excl.  HR)  and  from    `

February 2020 (i.e. EU-28 excl. UK) 

EU-25  European Union, 25 Member States before 2007 (i.e. EU-28 excl. BG, RO and HR) 
EU-15  European Union, 15 Member States before 2004 

Currencies 

EUR  
HUF 
PLN 
RON 
SEK 
USD 

Euro 
Hungarian forint 
Polish zloty 
Romanian leu (ROL until 30 June 2005) 
Swedish krona 
United States dollar 

Central Banks 

ČNB 
Česká národní banka (Czech National Bank – central bank of Czechia) 
MNB  Magyar Nemzeti Bank (Hungarian National Bank – central bank of Hungary) 
NBP 
BNR 

Narodowy Bank Polski (National Bank of Poland – central bank of Poland) 
Banca Naţională a României (National Bank of Romania – central bank of Romania) 

Other abbreviations 

AML       Anti-money laundering  
Alert Mechanism Report 
AMR 
Balance of Payments 
BoP 
Corporate Income Tax 
CIT 
Consumer price index 
CPI 
European Commission 
EC 
European Central Bank 
ECB 
Excessive Deficit Procedure 
EDP 
EMU 
Economic and monetary union 
ERM II  Exchange rate mechanism II 
ESA 
ESCB 
EU 
Eurostat Statistical Office of the European Union 
FDI 
GDP 
HICP 
HFSA  Hungarian Financial Supervisory Authority 
IDR 
MIP 

Foreign direct investment 
Gross domestic product 
Harmonised index of consumer prices 

European System of Accounts 
European System of Central Banks 
European Union 

In-Depth Review 
Macroeconomic Imbalance Procedure 

iii 

 
 
 
 
MTFSP   Medium-term fiscal-structural plan  
NCBs  National central banks 
NEER  Nominal effective exchange rate 
OJ 
OJ L 
PIT 
PPS 
REER 
RRF 
RRP 
SGP 
TFEU 
ULC  
VAT 

Official Journal 
Official Journal Lex 
Personal Income Tax 
Purchasing Power Standards 
Real effective exchange rate 
Recovery and Resilience Facility  
Recovery and Resilience Plan 
Stability and Growth Pact 
Treaty on the Functioning of the European Union 
Unit labour costs 
Value added tax 

iv 

 
 
ACKNOWLEDGEMENTS 

v 

 
CONTENTS 

Convergence Report 2026 

Convergence Report 2026 - Technical annex 

1. 

Introduction 

1.1. 

1.2. 

ROLE OF THE REPORT 

APPLICATION OF THE CRITERIA 

1.2.1. 

1.2.2. 

1.2.3. 

1.2.4. 

1.2.5. 

1.2.6. 

Compatibility of legislation 

Price stability 

Public finances 

Exchange rate stability 

Long-term interest rates 

Additional factors 

2. 

Czechia 

2.1. 

LEGAL COMPATIBILITY 

2.1.1. 

2.1.2. 

2.1.3. 

2.1.4. 

2.1.5. 

Introduction 

Central bank independence 

Prohibition of monetary financing and privileged access 

Integration into the Eurosystem 

Assessment of compatibility 

2.2. 

PRICE STABILITY 

2.2.1. 

2.2.2. 

2.2.3. 

Respect of reference value 

Recent inflation developments 

Underlying factors and sustainability of inflation 

2.3. 

PUBLIC FINANCES 

2.3.1. 

2.3.2. 

Recent fiscal developments 

Medium-term prospects 

2.4. 

2.5. 

2.6. 

EXCHANGE RATE STABILITY 

LONG-TERM INTEREST RATES 

ADDITIONAL FACTORS 

2.6.1. 

2.6.2. 

Developments in the balance of payments 

Market integration 

3. 

Hungary 

3.1. 

LEGAL COMPATIBILITY 

3.1.1. 

Introduction 

vii 

1 

3 

5 

5 

8 

8 

8 

12 

14 

16 

17 

21 

21 

21 

21 

22 

22 

23 

23 

23 

24 

24 

28 

28 

29 

31 

32 

33 

33 

35 

39 

39 

39 

3.1.2. 

3.1.3. 

3.1.4. 

3.1.5. 

Central bank independence 

Prohibition of monetary financing and privileged access 

Integration into the Eurosystem 

Assessment of compatibility 

3.2. 

PRICE STABILITY 

3.2.1. 

3.2.2. 

3.2.3. 

Respect of reference value 

Recent inflation developments 

Underlying factors and sustainability of inflation 

3.3. 

PUBLIC FINANCES 

3.3.1. 

3.3.2. 

Recent fiscal developments 

Medium-term prospects 

3.4. 

3.5. 

3.6. 

EXCHANGE RATE STABILITY 

LONG-TERM INTEREST RATES 

 ADDITIONAL FACTORS 

3.6.1. 

3.6.2. 

Developments in the balance of payments 

Market integration 

4. 

Poland 

4.1. 

LEGAL COMPATIBILITY 

4.1.1. 

4.1.2. 

4.1.3. 

4.1.4. 

4.1.5. 

Introduction 

Central bank independence 

Prohibition of monetary financing and privileged access 

Integration into the Eurosystem 

Assessment of compatibility 

4.2. 

PRICE STABILITY 

4.2.1. 

4.2.2. 

4.2.3. 

Respect of reference value 

Recent inflation developments 

Underlying factors and sustainability of inflation 

4.3. 

PUBLIC FINANCES 

4.3.1. 

4.3.2. 

Recent fiscal developments 

Medium-term prospects 

4.4. 

4.5. 

4.6. 

EXCHANGE RATE STABILITY 

LONG-TERM INTEREST RATES 

ADDITIONAL FACTORS 

4.6.1. 

4.6.2. 

Developments in the balance of payments 

Market integration 

5. 

Romania 

5.1. 

LEGAL COMPATIBILITY 

5.1.1. 

Introduction 

39 

41 

42 

42 

43 

43 

43 

44 

47 

47 

48 

50 

51 

52 

53 

54 

61 

61 

61 

61 

63 

64 

64 

64 

64 

65 

66 

68 

68 

69 

72 

72 

73 

74 

75 

79 

79 

79 

viii 

 
5.1.2. 

5.1.3. 

5.1.4. 

5.1.5. 

Central bank independence 

Prohibition of monetary financing and privileged access 

Integration into the Eurosystem 

Assessment of compatibility 

5.2. 

PRICE STABILITY 

5.2.1. 

5.2.2. 

5.2.3. 

Respect of reference value 

Recent inflation developments 

Underlying factors and sustainability of inflation 

5.3. 

PUBLIC FINANCES 

5.3.1. 

5.3.2. 

Recent fiscal developments 

Medium-term prospects 

5.4. 

5.5. 

5.6. 

EXCHANGE RATE STABILITY 

LONG-TERM INTEREST RATES 

ADDITIONAL FACTORS 

5.6.1. 

5.6.2. 

Developments in the balance of payments 

Market integration 

6. 

Sweden 

6.1. 

LEGAL COMPATIBILITY 

6.1.1. 

6.1.2. 

6.1.3. 

6.1.4. 

6.1.5. 

Introduction 

Central bank independence 

Prohibition of monetary financing and privileged access 

Integration into the Eurosystem 

Assessment of compatibility 

6.2. 

PRICE STABILITY 

6.2.1. 

6.2.2. 

6.2.3. 

Respect of reference value 

Recent inflation developments 

Underlying factors and sustainability of inflation 

6.3. 

PUBLIC FINANCES 

6.3.1. 

6.3.2. 

Recent fiscal developments 

Medium-term prospects 

6.4. 

6.5. 

6.6. 

EXCHANGE RATE STABILITY 

LONG-TERM INTEREST RATES 

ADDITIONAL FACTORS 

6.6.1. 

6.6.2. 

Developments in the balance of payments 

Market integration 

LIST OF TABLES 
2.1. 

Czechia - Components of inflation 

ix 

79 

80 

81 

81 

82 

82 

82 

83 

86 

86 

88 

90 

91 

91 

93 

94 

99 

99 

99 

99 

100 

101 

101 

101 

101 

102 

103 

107 

107 

108 

109 

110 

111 

112 

113 

24 

 
 
2.2. 
2.3. 

2.4. 
2.5. 
2.6. 
2.7. 
3.1. 
3.2. 
3.3. 

3.4. 
3.5. 
3.6. 
3.7. 
4.1. 
4.2. 
4.3. 

4.4. 
4.5. 
4.6. 
4.7. 
5.1. 
5.2. 
5.3. 

5.4. 
5.5. 
5.6. 
5.7. 
6.1. 
6.2. 
6.3. 

6.4. 
6.5. 
6.6. 
6.7. 

Czechia - Other inflation and cost indicators1) 
Czechia - Budgetary developments and projections (as % of GDP unless 
indicated otherwise) 
Czechia - Balance of payments 
Czechia - Market integration 
Czechia - Allocation of assets by financial sub-sector 
Czechia - Financing of the economy1) 
Hungary - Components of inflation 
Hungary - Other inflation and cost indicators1) 
Hungary - Budgetary developments and projections (as % of GDP unless 
indicated otherwise) 
Hungary - Balance of payments 
Hungary - Market integration 
Hungary - Allocation of assets by financial sub-sector 
Hungary - Financing of the economy1) 
Poland - Components of inflation 
Poland - Other inflation and cost indicators1) 
Poland - Budgetary developments and projections (as % of GDP unless 
indicated otherwise) 
Poland - Balance of payments 
Poland - Market integration 
Poland - Allocation of assets by financial sub-sector 
Poland - Financing of the economy1) 
Romania - Components of inflation 
Romania - Other inflation and cost indicators1) 
Romania - Budgetary developments and projections (as % of GDP unless 
indicated otherwise) 
Romania - Balance of payments 
Romania - Market integration 
Romania - Allocation of assets by financial sub-sector 
Romania - Financing of the economy1) 
Sweden - Components of inflation 
Sweden - Other inflation and cost indicators1) 
Sweden - Budgetary developments and projections (as % of GDP unless 
indicated otherwise) 
Sweden - Balance of payments 
Sweden - Market integration 
Sweden - Allocation of assets by financial sub-sector 
Sweden - Financing of the economy1) 

LIST OF GRAPHS 
2.1. 
2.2. 
2.3. 
2.4. 
2.5. 
2.6. 
2.7. 
2.8. 
2.9. 
2.10. 
2.11. 
3.1. 
3.2. 

Czechia - Inflation criterion 
Czechia - HICP inflation 
Czechia - Inflation, productivity and wage trends 
Czechia - Fiscal stance and its components 
Czechia - CZK/EUR exchange rate 
Czechia - 3-M Pribor spread to 3-M Euribor 
Czechia - Long-term interest rate criterion 
Czechia- Long-term interest rates 
Czechia - Effective exchange rates 
Czechia - World Bank's 2024 Worldwide Governance Indicators 
Czechia - Foreign ownership and concentration in the banking sector 
Hungary - Inflation criterion 
Hungary - HICP inflation 

25 

29 
34 
35 
37 
38 
44 
45 

49 
53 
55 
57 
58 
65 
66 

70 
74 
75 
76 
77 
83 
85 

88 
93 
95 
96 
97 
102 
104 

108 
113 
114 
115 
116 

24 
24 
26 
30 
31 
31 
32 
32 
34 
36 
38 
43 
43 

x 

 
 
3.3. 
3.4. 
3.5. 
3.6. 
3.7. 
3.8. 
3.9. 
3.10. 
3.11. 
4.1. 
4.2. 
4.3. 
4.4. 
4.5. 
4.6. 
4.7. 
4.8. 
4.9. 
4.10. 
4.11. 
5.1. 
5.2. 
5.3. 
5.4. 
5.5. 
5.6. 
5.7. 
5.8. 
5.9. 
5.10. 
5.11. 
6.1. 
6.2. 
6.3. 
6.4. 
6.5. 
6.6. 
6.7. 
6.8. 
6.9. 
6.10. 
6.11. 

Hungary - Inflation, productivity and wage trends 
Hungary - Fiscal stance and its components 
Hungary - HUF/EUR exchange rate 
Hungary - 3-M Bubor spread to 3-M Euribor 
Hungary - Long-term interest rate criterion 
Hungary - Long-term interest rates 
Hungary - Effective exchange rates 
Hungary - World Bank's 2024 Worldwide Governance Indicators 
Hungary - Foreign ownership and concentration in the banking sector 
Poland - Inflation criterion 
Poland - HICP inflation 
Poland - Inflation, productivity and wage trends 
Poland - Fiscal stance and its components 
Poland - PLN/EUR exchange rate 
Poland - 3-M Wibor spread to 3-M Euribor 
Poland - Long-term interest rate criterion 
Poland - Long-term interest rates 
Poland - Effective exchange rates 
Poland - World Bank's 2024 Worldwide Governance Indicators 
Poland - Foreign ownership and concentration in the banking sector 
Romania - Inflation criterion 
Romania - HICP inflation 
Romania - Inflation, productivity and wage trends 
Romania - Fiscal stance and its components 
Romania - RON/EUR exchange rate 
Romania - 3-M Robor spread to 3-M Euribor 
Romania - Long-term interest rate criterion 
Romania - Long-term interest rates 
Romania - Effective exchange rates 
Romania - World Bank's 2024 Worldwide Governance Indicators 
Romania - Foreign ownership and concentration in the banking sector 
Sweden - Inflation criterion 
Sweden - HICP inflation 
Sweden - Inflation, productivity and wage trends 
Sweden - Fiscal stance and its components 
Sweden - SEK/EUR exchange rate 
Sweden - 3-M Stibor spread to 3-M Euribor 
Sweden - Long-term interest rate criterion 
Sweden - Long-term interest rates 
Sweden - Effective exchange rates 
Sweden - World Bank's 2024 Worldwide Governance Indicators 
Sweden - Foreign ownership and concentration in the banking sector 

LIST OF BOXES 
1.1. 
1.2. 
1.3. 
1.4. 

Article 140 of the Treaty 
Assessment of price stability and the reference value 
Excessive Deficit Procedures under the new EU fiscal framework 
A reinforced approach to ERM II participation by means of upfront policy 
commitments by the applicant Member States 
Data for the interest rate convergence 
The Macroeconomic Imbalance Procedure (MIP) 

1.5. 
1.6. 

xi 

46 
49 
51 
51 
52 
52 
54 
55 
59 
65 
65 
67 
71 
72 
72 
73 
73 
74 
76 
78 
82 
82 
84 
89 
90 
90 
91 
91 
94 
95 
98 
102 
102 
105 
109 
110 
110 
111 
111 
113 
114 
117 

7 
10 
13 

15 
17 
18 

 
 
 
 
xii 

 
 
 
Convergence Report 2026 
(prepared in accordance with Article 140(1) of the Treaty) 

 
 
Report 

 
 
Convergence Report 2026 
Technical annex 

 
 
1. 

INTRODUCTION 

1.1.  ROLE OF THE REPORT 

The euro was introduced on  1 January 1999  by eleven Member States, namely Austria, Belgium, 
Finland,  France,  Germany,  Ireland,  Italy,  Luxembourg,  the  Netherlands,  Portugal  and  Spain. 
Subsequently, Greece (2001), Slovenia (2007), Cyprus and Malta (2008), Slovakia (2009), Estonia 
(2011), Latvia (2014), Lithuania (2015), Croatia (2023) and Bulgaria (2026) also adopted the euro. 

Member States for which the Council has not yet decided that they fulfil the necessary conditions 
for the adoption of the euro are referred to as ‘Member States with a derogation’. Article 140 of 
the  Treaty  lays  down  provisions  and  procedures  for  examining  the  convergence  situation  of 
Member States with a derogation (Box 1.1). At least once every two years, or at the request of a 
Member  State  with  a  derogation,  the  Commission  and  the  European  Central  Bank  (ECB)  prepare 
Convergence Reports for such Member States. Denmark negotiated an opt-out arrangement before 
the adoption of the Maastricht Treaty (1) and does not participate in the third stage of EMU. Until 
Denmark indicates that it wishes to participate in the third stage and adopt the euro, it will not be 
the  subject  of  an  assessment  as  to  whether  it  fulfils  the  necessary  conditions  for  such  a 
participation. 

In 2024, the Commission and the ECB adopted their latest regular Convergence Reports  (2). None 
of the Member States assessed in those reports was deemed to meet the necessary conditions for 
adopting the euro.  

On  25  February  2025,  Bulgaria  submitted  a  request  for  an  ad  hoc  convergence  assessment. 
Following the preparation of a Convergence Report on Bulgaria and on the basis of a proposal by 
the Commission, the Council decided in July 2025 that Bulgaria fulfilled the necessary conditions 
for adopting the euro on 1 January 2026 (3).  

In  2026,  two  years  have  elapsed  since  the  last  regular  reports  were  prepared.  Denmark has not 
expressed a wish to enter the third stage of EMU. Therefore, this convergence assessment covers 
Czechia,  Hungary,  Poland,  Romania  and  Sweden.  This  Commission  Staff  Working  Document  is  a 
Technical  Annex  to  the  Convergence  Report  2026  and  includes  a  detailed  assessment  of  the 
progress with convergence, as required by Article 140(1) of the Treaty. 

The  convergence  assessment  in  this  report  is  presented  against  the  backdrop  of  several  major 
economic and policy developments over the course of 2025 and the first half of 2026. In 2025, 
volatility in US trade policy and the increase in the US trade tariffs, although lower than originally 
announced, disrupted global trade flows and led to heightened policy uncertainty. However, despite 
this challenging external environment, the EU economy showed resilience and continued to grow at 
a  steady  pace.  Following  moderate  economic  growth  of  1.0%  in  2024,  the  EU  economy  gained 
momentum in 2025, with GDP consequently growing by 1.4%. This growth  was underpinned by a 
strong labour market, easing inflationary pressures, and favourable financial conditions. Following 
its  peak  in  2022-23,  annual  consumer  price  inflation  fell  to  2.6%  in  2024  and  2.5%  in  2025. 
Driven by lower energy prices and falling services inflation, it continued to fall across the EU during 
the first half of 2025, before stabilising at around 2% during the second half of the year and the 
first two months of 2026.  

However, the outbreak of the war in the Middle East on 28 February 2026 materially changed this 
picture,  by  creating  the  most  significant  global  energy  supply  disruption  in  recent  history.  The 
Middle  East  conflict  was  followed  by  the  virtual  closure  of  the  Strait  of  Hormuz,  which  reduced 
seaborne flows of oil and LNG and led to a surge in energy  prices. Between the outbreak of the 
Middle  East  conflict  and  29  April  -  the  cut-off  date  for  the  technical  assumptions  of  the 

(1)  Protocol (No 16) on certain provisions relating to Denmark. 
(2)  European  Commission,  Convergence  Report  2024,  COM(2024)  270  final,  26  June  2024;  European  Central  Bank, 

Convergence Report 2024, June 2024. 

(3)  Council  Decision  (EU)  2025/1407  of  8  July  2025  on  the  adoption  by  Bulgaria  of  the  euro  on  1  January  2026  (OJ  L 

1407, 14.7.2025, pp. 1-4). 

5 

 
Convergence Report 2026 - Technical annex 
Chapter 1 - Introduction 

Commission’s Spring 2026 Economic Forecast, which is the basis for the sustainability assessment 
in this Convergence Report - oil and gas prices increased by 65% and 50% respectively, leading to 
a strong acceleration of energy inflation. Price pressures are set to broaden progressively, as rising 
energy costs feed through the production chain and are partially passed through to consumers. The 
external assumptions of the  Commission’s Spring  2026 Economic Forecast  take into account the 
path  of  futures  prices  for  energy  commodities  at  the  time  of  the  cut-off  date  of  the  forecast. 
These  energy  commodity  assumptions  suggest  a  relatively  swift,  albeit  partial,  normalisation  of 
supply conditions, with oil and gas prices expected to stabilise at around 20% above pre-war levels 
by 2027. 

In  parallel,  Russia’s  war  of  aggression  against  Ukraine  implies  a  significant  threat  to  European 
security and requires  spending to be increased on defence for the foreseeable future. As part of 
this,  the  Commission  presented  a  defence  package  in  March  2025  under  the  ReArm  Europe 
Plan/Readiness 2030 initiative. Under this plan, the Commission invited Member States to request 
the activation of the National Escape Clause of the Stability and Growth Pact, which provides them 
additional  budgetary  space  to  transition  to  a  durably  higher  level  of  defence  expenditure,  within 
the EU fiscal rules. The amount of the planned deviation  from the recommended net expenditure 
path  under  the  escape  clause  is  capped  at  1.5%  of  GDP,  available  for  a  period  of  four years.  In 
addition, the new Security Action for Europe (SAFE) package provides loans of up to EUR 150 billion 
to  help  EU  Member  States  quickly  and  substantially  increase  investments  in  Europe’s  defence 
capabilities. 

Faster implementation of the national recovery and resilience plans (RRPs), ahead of the closure of 
the  Recovery  and  Resilience  Facility  (RRF)  at  the  end  of  the  year,  along  with  progress  in  the 
implementation  of  2021-2027  cohesion  policy  programmes  are  expected  to  partly  offset  the 
negative  consequences  of  the  current  geopolitical  instability  and  contribute  to  the  convergence 
process of non-euro area EU Member States. Besides contributing to higher growth and improved 
public  finances,  the  RRF  and  cohesion  policy  programmes  strengthen  Member  States’  long-term 
growth and resilience by supporting major reforms and investments that help address both long-
standing and new challenges, such as diversifying energy supplies. By the end of  May 2026, RRF 
disbursements  reached  EUR  405.9  billion,  which  is  around  70%  of  the  total  amount  of  support 
committed under the RRF. For the 2021-2027 period, the EU will provide cohesion policy funding of 
EUR  420  billion  to  Member  States.  Cohesion  policy  is  concentrated  on  fields  that  are  critical  for 
promoting  convergence  and  competitiveness.  It  supports  long-term  investment  in  line  with  EU 
priorities,  encourages  EU  GDP  growth,  and  has  a  particularly  high  impact  on  the  Member  States 
and regions that are the main beneficiaries of the policy. The mid-term review of cohesion policy, 
which  was  concluded  in  autumn  2025,  provided  Member  States  with  greater  flexibility  and 
incentives  to  deploy  existing  resources  more  rapidly  and  accelerate  programme  implementation 
and better align funding with key EU priorities.  

On 22 April 2026, the Commission adopted the ‘AccelerateEU’ Communication, which presented a 
comprehensive  set  of  actions  and  measures  to  address  rising  energy  costs  and  further  reduce 
dependency  on  volatile  fossil  fuel  markets,  while  putting  Europe  on  a  steady  pathway  to  energy 
independence.  The  plan  aims  to  provide  relief  to  consumers  facing  energy  price  spikes  and 
accelerate  the  transition  to  clean,  secure  and  affordable  energy.  Many  Member  States  have 
adopted  budgetary  policy  measures  to  mitigate  the  social  and  economic  impact  of  high  energy 
prices  on  households  and  businesses.  According  to  the  Commission’s  Spring  2026  Economic 
Forecast,  the  total  budgetary  cost  of  such  measures  is  EUR  14.6  billion,  or  0.07%  of  EU  GDP  in 
2026, with large differences between Member States.  

6 

 
 
 
 
 
Convergence Report 2026 - Technical annex 
Chapter 1 - Introduction 

On  3  June  2026,  the  Commission  published  its  2026  European  Semester  Spring  Package.  The 
package  includes the  Commission’s  assessment  of  Member  States’  compliance  with  the  relevant 
Council  recommendations  on  fiscal  policy.  For  the  10  Member  States  currently  under  excessive 
deficit  procedure  (EDP),  including  Hungary,  Poland  and  Romania,  the  Commission  assessed  the 
action  taken  in  response  to  the  Council  recommendations  under  the  EDP.  For  the  other  Member 
States  (not  currently  in  EDP),  including  Czechia  and  Sweden,  the  Commission  assessed  progress 
with  the  implementation  of  the  medium-term  plans  and  compliance  with  the  relevant  Council 
recommendations.  For  Member  States  that  benefit  from  a  fiscal  adjustment  period  of  seven 
instead  of  four  years  in  the  context  of  their  medium-term  plans,  including  Romania,  the 
Commission  also  assessed  the  implementation  of  the  key  steps  of  reform  and  investment 
commitments  underpinning  the  extension.  The  Commission  also  announced  that  Member  States 

7 

Box 1.1: Article 140 of the Treaty ‘1. At least once every two years, or at the request of a Member State with a derogation, the Commission and the European Central Bank shall report to the Council on the progress made by the Member States with a derogation in fulfilling their obligations regarding the achievement of economic and monetary union. These reports shall include an examination of the compatibility between the national legislation of each of these Member States, including the statutes of its national central bank, and Articles 130 and 131 and the Statute of the ESCB and of the ECB. The reports shall also examine the achievement of a high degree of sustainable convergence by reference to the fulfilment by each Member State of the following criteria: — the achievement of a high degree of price stability; this 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, — 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), — 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, — 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. The four criteria mentioned in this paragraph and the relevant periods over which they are to be respected are developed further in a Protocol annexed to the Treaties. The reports of the Commission and the European Central Bank shall also take account of the results of the integration of markets, the situation and development of the balances of payments on current account and an examination of the development of unit labour costs and other price indices. 2. After consulting the European Parliament and after discussion in the European Council, the Council shall, on a proposal from the Commission, decide which Member States with a derogation fulfil the necessary conditions on the basis of the criteria set out in paragraph 1, and abrogate the derogations of the Member States concerned. The Council shall act having received a recommendation of a qualified majority of those among its members representing Member States whose currency is the euro. These members shall act within six months of the Council receiving the Commission's proposal. The qualified majority of the said members, as referred to in the second subparagraph, shall be defined in accordance with Article 238(3)(a). 3. If it is decided, in accordance with the procedure set out in paragraph 2, to abrogate a derogation, the Council shall, acting with the unanimity of the Member States whose currency is the euro and the Member State concerned, on a proposal from the Commission and after consulting the European Central Bank, irrevocably fix the rate at which the euro shall be substituted for the currency of the Member State concerned, and take the other measures necessary for the introduction of the euro as the single currency in the Member State concerned.’  
 
   
 
 
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that  take  action  to  strengthen  Europe's  energy  security  and  accelerate  the  transition  away  from 
fossil  fuels  may  request  limited  fiscal  flexibility  under  the  current  National  Escape  Clause  for 
defence spending. Upon request by the Member State, the scope of the clause can be expanded to 
include measures, undertaken since February 2026 that reduce the dependence on imported fossil 
fuels, subject to a dedicated annual cap for the period 2026-2028 (0.3% of GDP) and a cumulative 
cap (0.6% of GDP). 

The  remainder  of  this  first  chapter  presents  the  methodology  used  for  the  application  of  the 
assessment criteria. Chapters 2 to 7 examine the fulfilment of the convergence criteria and other 
requirements in the order in which they appear in Article 140(1) (see Box 1.1). The cut-off date for 
the statistical data included in this Convergence Report was 17 June 2026. The examination of the 
compatibility of national legislation is based on the legislation in force by the end of April 2026. 

1.2.  APPLICATION OF THE CRITERIA 

In  accordance  with  Article  140(1)  of  the  Treaty,  the  Convergence  Reports  shall  examine  the 
compatibility of national legislation with Articles 130 and 131 of the Treaty and the Statute of the 
European System of Central Banks (ESCB) and of the European Central Bank. The reports shall also 
examine  the  achievement  of  a  high  degree  of  sustainable  convergence  by  reference  to  the 
fulfilment  of  the  four  convergence  criteria  dealing  with  price  stability,  public  finances,  exchange 
rate stability and long-term interest rates as well as some additional factors. The four convergence 
criteria  are  developed  further  in  a  Protocol  annexed  to  the  Treaty  (Protocol  No  13  on  the 
convergence criteria). 

1.2.1.  Compatibility of legislation 

In accordance with Article 140(1) of the Treaty, the legal examination includes an assessment of 
compatibility  between  a  Member  State’s  legislation,  including  the  statute  of  its  national  central 
bank, and Article 130 and 131 of the Treaty. This assessment mainly covers three areas. 

•  First, the independence of the national central bank and of the members of its decision-making 
bodies, as laid down in Article 130, must be assessed. This assessment covers all issues linked 
to  a  national  central  bank’s  institutional  and  financial  independence  and  to  the  personal 
independence of the members of its decision-making bodies.  

•  Second, in accordance with Articles 123 and 124 of the Treaty, the compliance of the national 
legislation is verified against the prohibition of monetary financing and privileged access. The 
prohibition of monetary  financing is laid down in Article  123(1) of the Treaty, which  prohibits 
overdraft  facilities  or  any  other  type  of  credit  facility  with  the  ECB  or  the  central  banks  of 
Member States in favour of Union institutions, bodies, offices or agencies, central governments, 
regional,  local  or  other  public  authorities,  other  bodies  governed  by  public  law,  or  public 
undertakings of Member States; and the purchase directly from these public sector entities by 
the ECB or central banks of debt instruments. As regards the prohibition on privileged access as 
set out in Article 124, the central banks, as public authorities, may not take measures granting 
privileged access by the public sector to financial institutions if such measures are not based 
on prudential considerations.  

•  Third, in accordance with Article 131, the integration of the national central bank into the ESCB 
has to be examined, in order to ensure that at the latest by the moment of euro adoption, the 
objectives  of  the  national  central  bank  are  compatible  with  the  objectives  of  the  ESCB  as 
formulated  in  Article  127  of  the  Treaty.  The  national  provisions  on  the  tasks  of  the  national 
central bank are assessed against the relevant rules of the Treaty and the ESCB/ECB Statute. 

1.2.2.  Price stability 

The  price  stability  criterion  is  defined  in  the  first  indent  of  Article  140(1)  of  the  Treaty:  ‘the 
achievement of a high degree of price stability; this 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’. 

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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. 

Since  national  consumer  price  indices  (CPIs)  diverge  substantially  in  terms  of  concepts,  methods 
and practices, they do not constitute the appropriate means to meet the Treaty requirement that 
inflation must be measured on a comparable basis. To this end, the Council adopted on 23 October 
1995  a  framework  regulation  (4)  setting  the  legal  basis  for  the  establishment  of  a  harmonised 
methodology for compiling consumer price indices in the Member States. This process resulted in 
the production of the Harmonised Indices of Consumer Prices (HICPs), which are used for assessing 
the fulfilment of the price stability criterion. 

As has been the case in  past convergence reports, a  Member State’s average rate of inflation is 
measured  by  the  percentage  change  in  the  arithmetic  average  of  the  last  12  monthly  indices 
relative to the arithmetic average of the 12 monthly indices of the previous period. The reference 
value is calculated as the arithmetic average of the average rate of inflation of the three ‘best-
performing EU Member States in terms of price stability’ plus 1.5 percentage points (see Box 1.2). 

Accordingly,  the  reference  value  is  currently  2.7%,  based  on  the  data  of  Cyprus  (0.9%),  France 
(1.2%)  and  Denmark  (1.6%)  over  the  12-month  period  covering  June  2025  –  May  2026.  No 
Member States were identified as outliers in terms of inflation performance for the calculation of 
the reference value, as none of their inflation rates deviated by a wide margin from the euro area 
average due to country-specific circumstances (see Box 1.2).   

The Protocol on the convergence criteria not only requires Member States to have achieved a high 
degree of price stability but also calls for a price performance that is sustainable. The requirement 
of  sustainability  aims  at  ensuring  that  the  degree  of  price  stability  and  inflation  convergence 
achieved in previous years will be maintained after adoption of the euro. This deserves particular 
attention as sustained divergences in price developments in one or more euro area Member States 
can  lead  to  the  emergence  of  competitiveness  losses  that  must  be  corrected  via  painful 
adjustment processes and can trigger negative spillover effects on other Member States. 

Inflation sustainability implies that the satisfactory inflation performance must essentially be due 
to the adequate behaviour of input costs and other factors that influence price developments in a 
structural manner, rather than reflecting the influence of cyclical or temporary factors. Therefore, 
this  Technical  Annex  also  takes  account  of  the  role  of  the  macroeconomic  situation  and  cyclical 
position in the inflation performance, of developments in unit labour costs as a result of trends in 
labour productivity and nominal compensation per head, and of developments in import prices to 
assess how external price developments have impacted on domestic inflation. Similarly, the impact 
of administered prices and indirect taxes on headline inflation is also considered. 

From a forward-looking perspective, the report includes an assessment of medium-term prospects 
for  price  developments.  The  analysis  of  factors  that  have  an  impact  on  the  inflation  outlook  is 
complemented  by  the  projections  from  the  most  recent  Commission  inflation  forecast.  Medium-
term  inflation  prospects  are  also  assessed  by  reference  to  the  economies’  key  structural 
characteristics, including the functioning of the labour and product markets. 

(4)  Council Regulation (EC) No 2494/95 of 23 October 1995 concerning harmonised indices of consumer prices (OJ L 257, 
27.10.1995, pp. 1-4), amended by Regulations (EC) No 1882/2003 and No 596/2009 of the European Parliament and 
of the Council, and repealed by Regulation (EU) 2016/792 of the European Parliament and of the Council. 

9 

 
 
 
 
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Box 1.2: Assessment of price stability and the reference valueThe numerical part of the price stability criterion implies a comparison between a Member State's average price performance and a reference value.  A Member State’s average rate of inflation is measured by the percentage change in the unweighted average of the last 12 monthly indices relative to the unweighted average of the 12 monthly indices of the previous period, rounded to one decimal. This measure captures inflation trends over a period of one year as requested by the provisions of the Treaty. Using the commonly used inflation rate – calculated as the percentage change in the consumer price index of the latest month over the index for the equivalent month of the previous year – would not meet the one-year requirement. The latter may also be excessively volatile from month to month and excessively affected by temporary factors.  The reference value is calculated as the unweighted average of the average rates of inflation of, at most, the three best-performing Member States in terms of price stability plus 1.5 percentage points. The outcome is rounded to one decimal. While in principle the reference value could also be calculated on the basis of the price performance of only one or two best performing Member States in terms of price stability, it has been existing practice to select the three best performers. Defining the reference value in a relative way (as opposed to a fixed reference value) allows taking into account the effects of a common shock that affects inflation rates across all Member States.           Table 1:Inflation reference value in previous and current Convergence ReportsConvergence ReportCut-off monthThree bestReferenceEuro area averageadoption dateperformers 1) 2)value 3)inflation rate 4)1998January 1998Austria, France, Ireland2.71.52000March 2000Sweden, France, Austria2.41.42002April 2002United Kingdom, France, Luxembourg 5)3.32.42004August 2004Finland, Denmark, Sweden2.42.12006 May March 2006Sweden, Finland, Poland2.62.32006 DecemberOctober 2006Poland, Finland, Sweden2.82.22007March 2007Finland, Poland, Sweden3.02.12008March 2008Malta, Netherlands, Denmark3.22.52010March 2010Portugal, Estonia, Belgium 1.00.32012March 2012 Sweden, Ireland, Slovenia3.12.82013April 2013Sweden, Latvia, Ireland2.72.22014April 2014Latvia, Portugal, Ireland1.71.02016April 2016Bulgaria, Slovenia, Spain0.70.12018March 2018Cyprus, Ireland, Finland1.91.42020March 2020Portugal, Cyprus, Italy1.81.12022April 2022France, Finland, Greece4.94.42024May 2024Netherlands, Italy, Latvia4.13.42025April 2025Ireland, Finland, Italy2.82.32026May 2026Cyprus, France, Denmark2.72.21) EU15 until April 2004; EU25 between May 2004 and December 2006; EU27 between January 2007 and June 2013; EU28 between July 2013 and January 2020;    EU27 (without UK) from February 2020 onwards.2) In case of equal rounded average inflation for several potential best performers, the ranking is determined on the basis of unrounded data.3) Reference values are only computed at the time of Convergence Reports. All calculations of the reference value between the Convergence Reports are purely    illustrative.4) Measured by the percentage change in the arthmetic average of the latest 12 monthly indices relative to the arithmetic average of the 12 monthly indices of      the previous period.5) Based on revised data, Germany would replace Luxembourg as one of the three Member States with the lowest 12-month average inflation in April 2002.    This change would not affect the price and long-term interest rate reference values in April 2002.Sources: Eurostat and European Commission calculations. 
 
 
    
 
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Box (continued) 

11 

(Continued on the next page) 

As Article 140(1) of the Treaty refers to 'Member States' and does not make a distinction between euro area and other Member States, the Convergence Reports select the three best performers from all Member States – EU-15 for the Convergence Reports before 2004, EU-25 for the reports between 2004 and 2006, EU-27 for reports between 2007 and 2013, EU-28 for reports between 2014 and 2018 and EU-27 for the reports between 2020 and 2025.  The notion of 'best performer in terms of price stability' is not defined explicitly in the Treaty. It is appropriate to interpret this notion in a non-mechanical manner, taking into account the state of the economic environment and country-specific factors at the time of the assessment. In particular, an outlier analysis should be performed to identify those countries whose inflation rates cannot be seen as meaningful benchmarks. These outliers are identified on the basis of two criteria taken in combination: i) an inflation rate substantially below the euro area average; and ii) an inflation rate driven by country-specific factors that cannot be seen as representative of the process that is driving inflation in the euro area. Outliers were identified in the convergence reports of 2004, 2010, 2013, 2014, 2016, 2022 and 2024. In the 2004 report, Lithuania was not taken into account in the calculation of the reference value because its negative rate of inflation, which was due to country-specific economic circumstances, was significantly diverging from that of the other Member States, making Lithuania a de facto outlier that could not be considered as ‘best performer’ in terms of price stability. Its 12-month average inflation rate was 2.3 percentage points below that of the euro area (2.1%). In 2010, in an environment characterised by exceptionally large common shocks (the global economic and financial crisis and the associated sharp fall in commodity prices), a significant number of countries faced episodes of negative inflation rates (the euro-area average inflation rate in March 2010 was only slightly positive, at 0.3%). In this context, Ireland was excluded from the best performers on the ground that its average inflation rate (-2.3% in March 2010) deviated by a very wide margin from that of the euro area, mainly due to the severe economic downturn in that country. In 2013, Greece was excluded from the best performers, as its inflation rate was 1.8 percentage points lower than the euro area average of 2.2%, mainly reflecting the severe adjustment needs and the exceptional situation of the Greek economy. In 2014, Greece, Bulgaria and Cyprus were identified as outliers. In April 2014, the 12-month average inflation rate of Greece, Bulgaria and Cyprus were respectively -1.2%, -0.8% and -0.4%, significantly deviating from the euro area average of 1.0%. 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. In 2016, it was warranted to identify Cyprus and Romania as outliers, as their inflation rates deviated by a wide margin from the euro area average. In April 2016, the 12-month average (negative) inflation rates of Cyprus and Romania were respectively 1.9 percentage points and 1.4 percentage points below the euro area inflation rate of 0.1%. In case of Cyprus, deeply negative inflation mainly reflected the adjustment needs and exceptional situation of the economy. In case of Romania, it was mainly due to large VAT rate reductions. In 2022, Malta and Portugal were identified outliers as their average inflation rates in April 2022 were 2.2 percentage points and 1.7 percentage points below the euro area average of 4.4%. In the case of Malta, the comparatively low average inflation rate reflected broadly stably energy prices due to government measures in a context of surging international oil and gas prices and larger changes in the weights used to calculate the HICP than in most other EU Member States in 2021. In the case of Portugal, the comparatively very low average inflation rate reflected low energy inflation and the weaker cyclical position of the country compared with most of other EU Member States. In addition, the COVID-19 crisis had a prolonged negative impact on Portuguese activity and inflation. In 2024, Denmark, Finland and Belgium were identified outliers, as their average inflation rates in May 2024 were 2.3, 1.6 and 1.5 percentage points below the euro area average of 3.4%. In the case of Denmark and Belgium, the very low average inflation rates mainly reflected the much faster transmission of the drop in wholesale energy prices to retail prices, as a result of most electricity contracts in Denmark having variable prices and retail prices  
 
    
 
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Box (continued) 

1.2.3.  Public finances 

The convergence criterion dealing with the government budgetary position is defined in the second 
indent  of  Article  140(1)  of  the  Treaty  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’. 

The convergence assessment in the budgetary area is thus directly linked to the excessive deficit 
procedure which is specified in Article 126 of the Treaty and further clarified in the Stability and 
Growth  Pact  (see  Box  1.3)  for  further  information  on  the  excessive  deficit  procedure  as 
strengthened  by the 2024 reform of the Stability and Growth Pact). The details of the excessive 
deficit procedure are defined in Regulation 1467/97 as amended in 2024 which sets out the way 
in  which  government  deficit  and  debt  levels  are  assessed  to  determine  whether  an  excessive 
deficit exists, under Article 126 of TFEU. The convergence assessment of the budgetary position is 
therefore judged by whether the Member State is subject to a Council decision under 126(6) on the 
existence of an excessive deficit (5). 

On  3  June  2026,  as  part  of  the  European  Semester  Spring  2026  package,  the  Commission 
considered  that  effective  action  has  been  taken  towards  correcting  the  excessive  deficit  by 
Hungary,  Poland  and  Romania,  and  that,  therefore,  no  further  steps  need  to  be  taken  under  the 
EDP at this stage. For Member States not currently under an EDP,  including Czechia and Sweden, 
the Commission assessed progress on the implementation of  their medium-term fiscal-structural 
plans.  Czechia  and  Sweden  are  assessed  as  compliant  in  2025,  as  Sweden’s  net  expenditure 
growth  is  below  the  maxima  recommended  by  the  Council  and  Czechia’s  deviation  is  within  the 
flexibility  provided  by  the  national  escape  clause.  For  Member  States  that  benefit  from  a  fiscal 
adjustment  period  of  seven  instead  of  four  years  in  the  context  of  their  medium-term  plans, 
including Romania, the Commission considers the all the concerned Member States have  complied 
with their commitments in a satisfactory manner (6). 

(5)  The  definitions  of  the  government  deficit  and  debt  used  in  this  report  are  in  accordance  with  the  excessive  deficit 
procedure,  as  was  the  case  in  previous  convergence  reports.  These  definitions  are  laid  out  in  the  amended  Council 
Regulation (EC) No 479/2009. In particular, government debt is general government consolidated gross debt at nominal 
value. Information regarding the excessive deficit procedure and its application to different Member States since 2002 
can be found at: http://ec.europa.eu/economy_finance/economic_governance/sgp/deficit/index_en.htm. 

(6)  For more details, see Box 1: Fiscal surveillance under the Stability and Growth Pact,  2026 European Semester: Spring 

Package Communication. 

12 

in Belgium based on formulae that use the future gas and electricity prices. Finland’s very low inflation was largely due to the combined effects of a much weaker-than-average cyclical position and an exceptional adjustment by Statistics Finland to the price index of electricity. Table 1 lists the reference value in the convergence reports issued since 1998.  In this convergence report, no Member States were identified as outliers in terms of inflation performance for the calculation of the reference value, as none of their inflation rates deviated by a wide margin from the euro area average due to country-specific circumstances. The reference value is 2.7%, based on the data of Cyprus (0.9%), France (1.2%) and Denmark (1.6%) over the 12-month period covering June 2025 – May 2026.   
 
 
 
    
 
 
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Box 1.3: Excessive Deficit Procedures under the new EU fiscal frameworkThe new EU fiscal framework was adopted on 29 April 2024. The rules on the opening of a deficit-based Excessive Deficit Procedure (EDP) remain unchanged while the rules on the opening of a debt-based EDP are changed and clarified in the amended Council Regulation (EC) 1467/97 (1).  In order to simplify the EU fiscal framework and increase transparency, a single operational indicator (net expenditure) anchored in debt sustainability serves as a basis for setting the fiscal path and for carrying out annual fiscal surveillance. Net expenditure means government expenditure net of interest expenditure, discretionary revenue measures, expenditure on Union programmes fully matched by revenue from Union funds, national expenditure on co-financing of programmes funded by the Union, as well as cyclical elements of unemployment benefit expenditure. One-offs and other temporary measures will also be excluded from the net expenditure indicator.  The EDP is specified in Article 126 of the Treaty on the Functioning of the European Union (TFEU). Protocol 12 of the Treaty gives further details on the excessive deficit procedure, including the reference values on deficit and debt. Council Regulation (EC) 1467/97 on speeding up and clarifying the implementation of the EDP (the corrective arm of the Stability and Growth Pact) clarifies the implementation of the excessive deficit procedure. Together, these provisions determine the steps to be followed to reach a Council decision on the existence and correction of an excessive deficit. The Commission will produce reports under Article 126(3) of TFEU on the basis of the following criteria: • whether the ratio of the planned or actual government deficit to gross domestic product exceeds 3% of GDP, unless: − the ratio has declined substantially and continuously and reached a level that comes close to the reference value; − or, alternatively, the excess over the reference value is exceptional and temporary and the ratio remains close to the reference value; • when the ratio of the government debt to GDP exceeds 60% of GDP, the budgetary position is not close to balance (2) or in surplus and when the deviations recorded in the control account (3) of the Member State exceed the established annual or cumulative thresholds (0.3% and 0.6% of GDP respectively).  When assessing the existence of an excessive deficit in accordance with Article 126(3) TFEU, the Commission should take into account all relevant factors. Substantial public debt challenges in the Member State concerned should be considered a key aggravating factor. The increase of government investment in defence, where applicable, should be considered as a relevant factor when assessing the existence of an excessive deficit. The Commission shall give due and express consideration to any other factors which, in the opinion of the Member State concerned, are relevant in order to comprehensively assess compliance with the deficit and debt criteria and which the Member State has put forward to the Council and the Commission. In that context, particular consideration shall be given to financial contributions to fostering international solidarity and achieving the common priorities of the Union  (1) OJ L, 2024/1264, 30.4.2024, Council Regulation (EU) 2024/1264 of 29 April 2024 amending Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure (europa.eu). The consolidated version of Regulation No 1467/97 can be found at: https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A01997R1467-20240430. (2) The budgetary position shall be considered close to balance if the general government deficit does not exceed 0.5 % of GDP. (3) The Commission has set up a control account for each Member State to keep track of annual and cumulative upward and downward deviations of the net expenditure observed from the net expenditure path as set by the Council pursuant to the new preventive arm Regulation (see footnote 5).  
 
 
    
 
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Box (continued) 

1.2.4.  Exchange rate stability 

The  Treaty  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 2 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  2  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’ (7). Based on the Council Resolution 
on the establishment of the ERM II  (8), the European Monetary System has been replaced by the 
Exchange  Rate  Mechanism  II  upon  the  introduction  of  the  euro,  and  the  euro  has  become  the 
centre of the mechanism. 

(7) 

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 ERM II by the Informal ECOFIN Council, Athens, 5 April 2003. 

(8)  97/C 236/03 of 16 June 1997, OJ C 236, 2.8.1997, p.5. 

14 

referred to in the new preventive arm Regulation (4). For deficit-based EDPs, the relevant factors can be considered for i) those Member States with debt below 60% and ii) those Member States with debt exceeding 60% of GDP and satisfying the double condition of the overarching principle, i.e. that the general government deficit remains close to the 3% of GDP reference value and its excess over the reference value is temporary. In the next step of the procedure, the Economic and Financial Committee (EFC) should formulate an opinion in accordance with Article 126(4) TFEU within two weeks of the adoption by the Commission of a report issued in accordance with Article 126(3) TFEU. Taking fully into account this opinion, the Commission, if it considers that an excessive deficit exists, should address an opinion and a proposal to the Council in accordance with Article 126(5) and (6) TFEU and inform the European Parliament thereof. The Council should then decide on the existence of an excessive deficit in accordance with Article 126(6) TFEU, as a rule within four months of the reporting dates established in Article 3(2) and (3) of Regulation (EC) No 479/2009. When it decides that an excessive deficit exists, the Council should at the same time make recommendations to the Member State concerned in accordance with Article 126(7) TFEU.  In its recommendation, the Council shall request that the Member State implements a corrective net expenditure path which ensures that the general government deficit remains or is brought and maintained below the reference value within the deadline set in the recommendation. The corrective path should also ensure that the debt is kept on a plausibly downward path or remains at prudent levels below 60% of GDP in the medium term. In the case of a debt-based EDP, the corrective net expenditure path shall be at least as demanding as the net expenditure path under the preventive arm from which the Member State deviated and correct as a rule the cumulated deviations of the control account (5).   (4) OJ L 1263, 30.4.2024, Regulation (EU) 2024/1263 of the European Parliament and of the Council of 29 April 2024 on the effective coordination of economic policies and on multilateral budgetary surveillance and repealing Council Regulation (EC) No 1466/97 (europa.eu). (5) OJ L 1264, 30.4.2024. Council Regulation (EU) 2024/1264 amending Regulation (EC) No 1467/97 on speeding up and clarifying the implementation of the excessive deficit procedure.  
 
 
 
    
 
 
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Box 1.4: A reinforced approach to ERM II participation by means of upfront policy commitments by the applicant Member StatesParticipating in ERM II is an essential step for a Member State with a derogation on the way to fulfil the exchange rate criterion and to euro adoption. Fulfilling the exchange rate criterion through the smooth participation in ERM II is provided for in Article 140 of the TFEU, Protocol No 13 to the TFEU on the convergence criteria and the Resolution of the European Council on the establishment of an exchange-rate mechanism in the third stage of economic and monetary union adopted in Amsterdam on 16 June 1997 (1). In accordance with this framework, ERM II entry of a Member State with a derogation requires a mutual agreement of all ‘ERM II parties’. These include the finance ministers of euro area Member States, the European Central Bank, and the finance ministers and the central bank governors of the non-euro area Member States participating in ERM II. The European Commission provides analytical support to the ERM II process, but has no voting right and no right of initiative in the ERM II entry process. In July 2018, learning from past episodes of economic overheating in ERM II and the euro-area crisis, the ERM II parties clarified the modalities of a reinforced approach for future ERM II participation with a view of ensuring a smooth transition to, and participation in, ERM II, in their statement on Bulgaria’s path towards ERM II, stating that this approach would apply to all Member States wishing to join ERM II from then onwards (2). The reinforced approach was confirmed in the later statement of the ERM II parties of July 2019 on Croatia’s path towards ERM II participation (3). According to this reinforced approach, the applicant Member State and ERM II parties agree on a number of policy commitments to be implemented by the former before joining ERM II. This package of so called prior policy commitments aims at maximising the country’s chances to operate smoothly in ERM II. It is country-specific, targeted and covers policy areas that are highly relevant for a smooth transition to and participation in ERM II including, for instance institutional quality, governance, the financial sector, fiscal policy, or the business environment. In particular, as being part of the euro area now also implies for a Member State to be part of the Banking Union’s pillars of the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM), the applicant Member State is expected to enter into ‘close cooperation’ with the ECB for banking supervision purposes at the latest by the time of its participation in ERM II. A Member State with a derogation can join the Banking Union before its euro adoption via an arrangement called ‘close cooperation’. Entering in close cooperation with the ECB means that the significant credit institutions established in the country concerned are supervised by the ECB via the involvement of the domestic national supervisor. Entering in close cooperation also implies participation in the Single Resolution Mechanism, including the Single Resolution Fund. In terms of process, the ECB and the Commission monitor the fulfilment of the prior-commitments undertaken by the applicant Member States in the respective areas of competence of the ECB and the Union and in close cooperation with the Member State concerned. The two institutions regularly inform ERM II parties on the progress made with the prior-commitments. A comprehensive assessment of the applicants’ banking sector is carried out by the ECB as part of the process of establishing close cooperation with the ECB. This includes an asset quality review and a stress test that aims at assessing whether banks are fundamentally sound. The results of the comprehensive assessment are made public on the ECB’s website (4).  (1) https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A31997Y0802%2803%29  (2) See: https://www.consilium.europa.eu/en/press/press-releases/2018/07/12/statement-on-bulgaria-s-path-towards-erm-ii-participation/  (3) See: https://www.consilium.europa.eu/en/press/press-releases/2019/07/08/statement-on-croatia-s-path-towards-erm-ii-participation/  (4) The results of the comprehensive assessment of six Bulgarian banks are available at:   https://www.bankingsupervision.europa.eu/press/pr/date/2019/html/ssm.pr190726~1b474e3467.en.html   
 
 
    
 
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Box (continued) 

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  assessment  of  this  criterion  verifies  the  participation  in  ERM  II  (see  Box  1.4  for  further 
information on ERM II participation) and examines exchange rate behaviour within the mechanism. 
The relevant period for assessing exchange rate stability in this Technical Annex is 18 June 2024 
to 17 June 2026. 

1.2.5.  Long-term interest rates 

The  fourth  indent  of  Article  140(1)  of  the  Treaty  requires  that  ’the  durability  of  convergence 
achieved  by  the  Member  State  with  a  derogation  and  of  its  participation  in  the  exchange  rate 
mechanism’  is  ’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’ (see Box 1.5). 

16 

In line with the long-standing ERM II practice, ERM II parties also expect applicant Member States to take further policy commitments at the moment of joining ERM II with the aim of achieving a high degree of sustainable economic convergence by the time the euro will be adopted. At the time of writing this report, Denmark was the only non-euro-area Member State participating in ERM II.  The reinforced approach to ERM II participation has been applied to Bulgaria and Croatia, which joined the ERM II on 10 July 2020 after having completed their respective prior policy commitments (5). Both countries established close cooperation with the ECB. In addition, the prior policy commitments of the Bulgarian authorities covered measures related to the macroprudential framework, the supervision of the non-banking financial sector, the insolvency framework, the anti-money laundering framework and the governance of state-owned enterprises (6). The additional prior policy commitments of the Croatian authorities covered measures related to the macroprudential framework, the anti-money laundering framework, the collection, production and dissemination of statistic, public sector governance and firms’ administrative and financial burden (7). At the time of ERM II entry, the Bulgarian and Croatian authorities also committed to pursue sound economic policies with the aim of preserving economic and financial stability and achieving a high degree of sustainable economic convergence. In particular, the Bulgarian authorities committed to implement specific policy measures (the so-called post-ERM II entry commitments) on the non-banking financial sector, state-owned enterprises, the insolvency framework and the anti-money laundering framework (8). The Croatian authorities committed to implement specific policy measures on the anti-money laundering framework, the business environment, state-owned enterprises and the insolvency framework (9).  (5) For the details on the decision of the ERM II parties on Croatia and Bulgaria see:   https://ec.europa.eu/commission/presscorner/detail/en/IP_20_1321  (6) For more details on the prior-commitments taken by Bulgarian authorities see:   https://www.consilium.europa.eu/media/36125/st11119-en18.pdf.  (7) For the details on the decision of the ERM II parties on Croatia and Bulgaria see:   https://ec.europa.eu/commission/presscorner/detail/en/IP_20_1321.  (8) See: https://www.ecb.europa.eu/pub/pdf/annex/ecb.pr200710_annex~29156bba37.en.pdf.  (9) See: https://www.ecb.europa.eu/pub/pdf/annex/ecb.pr200710_1_annex.en.pdf.  
    
 
 
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For  the  assessment  of  the  criterion  on  the  convergence  of  interest  rates,  yields  on  benchmark 
long-term bonds have been taken, using an average rate over the latest 12 months. The reference 
value for May 2026 is calculated as the simple average of the average long-term interest rates in 
Cyprus (3.1%), France (3.5%) and Denmark (2.6%) plus 2 percentage  points, yielding  a reference 
value of 5.1%.  

1.2.6.  Additional factors 

Article  140(1)  TFEU  also  requires  that  the  reports  take  into  account  other  factors  relevant  to 
economic  integration  and  convergence.  These  additional  factors  include  financial,  product  and 
labour market  integration  and the  development  of  the  balance  of  payments.  The  analysis of  the 
development of unit labour costs and other price indices, which is also prescribed by Article 140 of 
the Treaty, is covered in the price stability section. 

17 

Box 1.5: Data for the interest rate convergenceThe fourth indent of Article 140(1) of the Treaty requires that the durability of nominal convergence and exchange rate stability in Member States should be assessed by reference to long-term interest rates. Article 4 of the Protocol on the convergence criteria adds that these ‘Interest rates shall be measured on the basis of long-term government bonds or comparable securities, taking into account differences in national definitions’. Article 5 of the Protocol requires that the Commission should provide the statistical data used for the application of the convergence criteria. However, in the context of the interest rate criterion, the ECB has developed the criteria for harmonising the series of 10-year benchmark bond yields on behalf of Eurostat and collects the data from the central banks. The selection of bonds for inclusion in this series is based on the following criteria: • issued by central government; • a residual maturity as close as possible to 10 years; • adequate liquidity, which is the main selection criterion; the choice between a single benchmark or the simple average of a sample is based on this requirement; • fixed coupon; • yield gross of tax. For thirteen Member States, the residual maturity of the benchmark bond is at least 10 years. For fourteen Member States, the residual maturity of the benchmark bond is below 10 years, in particular for Bulgaria and Lithuania with the residual maturity 6 or close to 6 years. All yields are calculated on the basis of secondary market rates, where available. For Czechia, Germany, Malta and Spain a basket of bonds is used, while a single benchmark bond is used in twenty-three Member States.  Data used in this Report can be found on Eurostat (‘Maastricht criterion bond yields (mcby): EMU convergence criterion bond yields’, code: tec00097). The same series is also published by the ECB's Statistical Data Warehouse (code IRS.M.Country Code.L.L40.CI.0000.Currency Code.N.Z) and in a dedicated page in the ECB website with additional information: http://www.ecb.europa.eu/stats/financial_markets_and_interest_rates/long_term_interest_rates/html/index.en.html.  
 
 
 
 
 
 
 
    
 
 
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(Continued on the next page) 

18 

Box 1.6: The Macroeconomic Imbalance Procedure (MIP)Key elements of the MIP A key lesson from the global financial crisis was that the EU economic governance framework needed strengthening to better support macroeconomic stability, beyond just fiscal policy. The Macroeconomic Imbalance Procedure (MIP) responds to that need by aiming at the detection, prevention and correction of macroeconomic imbalances that could harm economic stability in an EU country, the euro area, or the EU as a whole. It was introduced as part of the 2011 ’Six-Pack’ legislative package.  Identifying macroeconomic imbalances is complex and no simple and mechanistic criteria are available. That is the case as drivers of macroeconomic instability are multi-faceted phenomena whose severity needs to be assessed along several aspects, considering country-specific features, including those linked to the adjustment capacity of the economy. Therefore, the MIP relies on a two-step approach. In a first step, the Alert Mechanism Report (AMR) identifies the Member States that require more in-depth investigation for potential macroeconomic imbalances. The AMR is based on the economic reading of a scoreboard of economic and financial indicators. The scoreboard covers different challenges Member States may be faced with and comprises indicators in the areas of external accounts, competitiveness, private debt and credit flows, government debt,  financial sector, housing market, and employment. It encompasses variables that the economic literature associates with crisis episodes. Beyond the scoreboard, the analysis in the AMR considers additional information and assessment tools, including previous in-depth assessments under the MIP. In a second step, in-depth reviews (IDRs) for Member States selected in the AMR provide the basis for the identification of imbalances in those countries, and the assessment of their severity. The IDR analysis makes use of latest country-specific information and analytical tools developed by the Commission services. In addition, when relevant, the IDRs may reflect spillovers across Member States and vulnerabilities of cross-border relevance. Both ‘imbalances’ and ‘excessive imbalances’ may lead to recommendations by the Council upon Commission proposal. Those recommendations have been integrated in the single package of Country-Specific Recommendations (CSRs) under the European Semester. The identification of ‘excessive imbalances’ may imply a stronger surveillance process, possibly leading to an Excessive Imbalance Procedure. The latter involves a corrective action plan designed by the concerned Member State, endorsed by the Commission and the Council and monitored by the Commission, and includes the possibility of sanctions for euro area Member States in case of repeated non-compliance.  The implementation of the MIP has been refined following the recent review of the EU economic governance framework. A main objective is to have a more forward-looking surveillance, including an enhanced preventive role for the MIP to better address new risks to macroeconomic stability. Another objective is to increase ownership by the Member States of policies to address their imbalances, which should improve policy effectiveness. To achieve that, medium-term fiscal-structural plans should include measures to address MIP-relevant Country-Specific Recommendations (CSRs) and tackle imbalances or excessive imbalances. Enforcement is being stepped up as no implementation of those measures in the plans could lead to escalation of the surveillance, including the opening of an Excessive Imbalance Procedure. Finally, a stronger EU and euro area dimension in the MIP surveillance is being sought too. All those objectives are being pursued within the existing legal provisions, which were not changed over the governance review. The 2026 Alert Mechanism Report (AMR) and In-Depth Reviews (IDR) In its latest AMR from November 2025, the Commission concluded that IDRs were warranted for seven Member States. That set of countries coincided with the ones that had been identified with macroeconomic imbalances or excessive imbalances in spring 2025 in the previous annual cycle of  
 
 
    
 
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Box (continued) 

The assessment of additional factors gives an important indication of a Member State’s ability to 
integrate into the euro area without difficulties. As regards the balance of payments, the focus is 
on  the  situation  and  development  of  the  external  balance  (9).  Market  integration  is  assessed 
through  trade,  foreign  direct  investment  and  a  smooth  functioning  of  the  internal  market. 
Moreover,  progress  in  financial  integration  is  examined,  together  with  the  main  characteristics, 
structures and trends of the financial sector. Given that Member States which adopt the euro also 
participate in the banking union, developments in national banking sectors are specifically looked 
at as well. 

Starting  with  the  2012  Convergence  Report,  the  convergence  assessment  is  aligned  with  the 
broader  European  Semester  approach  which  takes  an  integrated  look  at  the  economic  policy 
challenges facing EMU in ensuring fiscal sustainability, competitiveness, financial market stability 
and economic growth. 

The  section  on  additional  factors  makes  reference  to  the  surveillance  of  macroeconomic 
imbalances under the Macroeconomic Imbalance Procedure (see Box 1.6). 

(9)  The external balance is defined as the combined current and capital account (net lending/borrowing vis-à-vis the rest of 
the world). This concept permits in particular to take full account of external transfers (including EU transfers),  which 
are  partly  recorded  in  the  capital  account.  It  is  the  concept  closest  to  the  current  account  as  defined  when  the 
Maastricht Treaty was drafted. 

19 

MIP implementation (1). Three of those Member States are covered in this Convergence Report (Hungary, Romania, and Sweden). Taking into account the most recent IDRs, in June 2026, the Commission concluded that Sweden is no longer experiencing imbalances, that Hungary continues to experience imbalances and that Romania continues to experience excessive imbalances (2).   (1) European Commission (2025), Alert Mechanism Report 2026, COM(2025) 956 final; and European Commission (2025), Alert Mechanism Report 2026, SWD(2025) 956 final. (2) Communication from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee, the Committee of the Regions and the European Investment Bank ‘2026 European Semester – Spring Package’, COM(2026) 200 final.  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
 
 
2.  CZECHIA 

2.1.  LEGAL COMPATIBILITY 

2.1.1.  Introduction 

The Česká národní banka (ČNB – Czech national bank, hereafter ČNB) was established on January 
1,  1993.  Its  main  legal  basis  is  the  Czech  National  Council  Act  No.  6/1993  Coll.  on  the  Czech 
National Bank, adopted on 17 December 1992 (the ČNB Law). 

Following the Commission’s 2024 Convergence Report, the ČNB Law was amended  (10). However, 
since  there  have  been  no  amendments  as  regards  the  incompatibilities  and  imperfections 
highlighted in the Commission’s 2024 Convergence Report, the comments made in the latter report 
remain relevant and are repeated in this year’s assessment. 

2.1.2.  Central bank independence 

Article  9(1)  of  the  ČNB  Law  prohibits  the  ČNB  and  its  Board  from  taking  instructions  from  the 
President  of  the  Republic,  Parliament,  the  Government,  administrative  authorities  of  the  Czech 
Republic,  European  Union  bodies,  institutions,  or  other  entities  of  the  European  Union,  any 
government of a Member State of the European Union or any other body.  

Article 9(1) of the ČNB Law needs to be adapted to fully comply with the provisions of Article 130 
TFEU and Article 7 of the ESCB/ECB Statute and consequently expressly prohibit third parties from 
giving  instructions  to  the  ČNB  and  its  Board  members  who  are  involved  in  the  performance  of 
ESCB-related tasks. 

Article 3 of the ČNB Law provides that the ČNB shall submit a report on monetary development to 
the  Chamber  of  Deputies  of  Parliament  at  least  twice  a  year  for  review.  Upon  decision  of  the 
Chamber of Deputies, the ČNB shall submit an extraordinary report on monetary development. The 
Chamber  of  Deputies  shall  be  entitled  to  acknowledge  or  ask  for  a  revised  report  on  monetary 
development. Such powers of the Parliament may breach the prohibition on giving instructions to 
the ČNB. Therefore, Article 3 is not compatible with the provisions of Article 130 TFEU and Article 7 
of the ESCB/ECB Statute.  

In addition, the power for the Chamber of Deputies of the Parliament to impose modifications to 
the annual financial report, which was previously submitted and rejected (Article 47(5) of the ČNB 
Law)  could  hamper  the  ČNB’s  institutional  independence.  Moreover,  it  is  formulated  in  a  very 
general  manner,  which  could  create  situations  where  the  Parliament  requests  changes  affecting 
the financial independence of the ČNB. Thus, the current wording of Article 47(5) of the ČNB Law 
constitutes an incompatibility that should be removed from the ČNB Law. 

Article 6(10) of the ČNB Law provides that members of the Bank  Board, which also includes the 
Governor  of  the  ČNB,  may  be  relieved  from  office  only  if  they  no  longer  fulfil  the  conditions 
required  for  the  performance  of  their  duties  or  if  they  have  been  guilty  of  serious  misconduct. 
Although Article 6(10) of the ČNB Law extends the protection offered to Governors by Article 14.2 
of  the  ESCB/ECB  Statute  against  arbitrary  dismissal,  to  all  Bank  Board  members  of  the  ČNB,  it 
remains silent on the Governor’s right in case of dismissal to seek judicial review before the Court 
of Justice of the European Union. However, footnote 22 in the ČNB Law specifically points out to 
Article 14.2 of the ESCB/ECB Statute. Therefore, the Commission understands that the possibility to 
seek legal redress by the Governor before the Court of Justice of the European Union, as enshrined 
in Article 14.2 of the ESCB/ECB Statute, would apply. However, an explicit clarification in the ČNB 
Law on the right of the Governor to seek judicial review  by the Court of Justice of the European 
Union would be required to ensure legal certainty. In addition, in order to increase legal certainty, 
the ČNB Law should provide for the right of the decision-making bodies of the ČNB involved in the 

(10)  The amendments stem from the Act. No. 278/2024 Coll and Act No. 280/2025 Coll. 

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Chapter 2 - Czechia 

performance  of  ESCB-related  tasks,  other  than  the  Governor,  to  seek  judicial  review  before  the 
national courts in case of dismissal.  

Pursuant to Article 11(1) of the ČNB Law, the Minister of Finance or another nominated member of 
the  Government  may  attend  the  meetings  of  the  Bank  Board  in  an  advisory  capacity  and  may 
submit  motions  for  discussion.  Article  11(2)  entitles  the  Governor  of  the  ČNB,  or  a  Deputy-
Governor  nominated  by  him,  to  attend  the  meetings  of  the  Government  in  an  advisory  capacity. 
With regard to Article 11(1) of the ČNB Law, although a dialogue between a central bank and third 
parties is not prohibited as such, it should be  ensured that this dialogue is constructed in such a 
way  that  the  Government  should  not  be  in  a  position  to  influence  or  to  appear  to  be  able  to 
influence  the  central  bank  when  the  latter  is  to  adopt  decisions  for  which  its  independence  is 
protected  by  Union  law.  The  active  participation  of  the  Minister,  even  without  voting  rights,  in 
discussions  where  monetary  policy  is  set,  would  structurally  give  to  the  Government  the 
opportunity to influence the central bank when taking its key decisions, or to appear to be able to 
do so, casting doubts on the central bank’s independence. Therefore, Article 11(1) of the ČNB Law 
is incompatible with Article 130 TFEU. 

2.1.3.  Prohibition of monetary financing and privileged access 

Pursuant to Article 33a of the ČNB Law on emergency liquidity to the Financial Market Guarantee 
System,  in  emergencies  where  the  Financial  Market  Guarantee  System  has  insufficient  funds  to 
carry  out  its  duties  arising  from  the  legislation  on  deposit  insurance,  and  this  situation  might 
jeopardise the stability in the financial market, the ČNB may, upon request, exceptionally provide it 
with short-term credit or conclude a repo transaction with it, for a period of up to three months. 
The short-term credit  must be guaranteed by government bonds or other securities underwritten 
by  the  Government  and  owned  by  the  Financial  Market  Guarantee  System.  The  Financial  Market 
Guarantee  System  qualifies  as  a  ‘body  governed  by  public  law’  within  the  meaning  of  Article 
123(1)  TFEU,  being  closely  dependent  on  the  public  sector  entities  referred  to  in  Article  123(1) 
TFEU.  The  governing  body  of  the  Financial  Market  Guarantee  System  is  composed  of  two 
employees  of  the  Czech  National  Bank,  two  employees  of  the  Ministry  of  Finance,  and  one 
representative  appointed  on  a  proposal  from  the  Czech  Banking  Association.  Although  only  a 
minority  of  the  members  of  the  Financial  Market  Guarantee  System’s  governing  body  are 
representatives  of  the  Ministry  of  Finance,  the  Ministry  of  Finance  has  the  right  to  appoint  and 
dismiss  all  the  members  of  the  Financial  Market  Guarantee  System’s  governing  body.  Therefore, 
the provisions laid  down in Article 33a of the ČNB  Law  regarding the possibility of ČNB granting 
short-term credit to the Financial Market Guarantee System are not compatible with the monetary 
financing prohibition and the relevant legal framework should be amended accordingly.  

Article  34a(1)  first  half-sentence  of  the  ČNB  Law  prohibits  the  ČNB  from  providing  overdraft 
facilities  or  any  other  type  of  credit  facility  to  the  bodies,  institutions  or  other  entities  of  the 
European  Union,  central  governments,  regional  or  local  authorities  or  other  bodies  governed  by 
public law, other entities governed by  public law or public undertakings of the Member States of 
the European Union. The  list  of entities does not  fully mirror the one in Article  123(1)  TFEU and, 
therefore, must be amended. 

2.1.4.  Integration into the Eurosystem  

Objectives 

Pursuant to Article 2(1) of the ČNB Law, ‘in addition’ to the ČNB’s primary objective of maintaining 
price stability, the ČNB shall work to ensure financial stability and the safe and sound operation of 
the  financial  system  in  the  Czech  Republic  and  –  without  prejudice  to  its  primary  objective  – 
support the general economic policies of the Government leading to sustainable economic growth 
and  the  general  economic  policies  in  the  European  Union  with  a  view  to  contributing  to  the 
achievement  of  the  objectives  of  the  European  Union.  Article  2(1)  of  the  ČNB  Law  needs  to  be 
amended  with  a  view  to  render  it  compatible  with  Article  127(1)  TFEU  and  Article  2  of  the 
ESCB/ECB Statute. The secondary objective of the ČNB of ensuring financial stability and the safe 

22 

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Chapter 2 - Czechia 

and  sound  operation  of  the  financial  system  in  the  Czech  Republic  should  be  also  stated  to  be 
‘without prejudice’ to the primary objective of maintaining price stability. In addition, Article 2(1) of 
the ČNB Law needs to be further amended to fully comply with the wording of Article 127(1) TFEU 
as regards the secondary objective of the ESCB. 

Tasks 

The incompatibilities in this area, following the TFEU provisions and ESCB/ECB Statute, include: 

•  definition  of  monetary  policy  and  monetary  functions,  operations  and  instruments  of  the 

ECB/ESCB (Articles 2(2)(a), 5(1) and 23 to 26, 32, 33 of the ČNB Law); 

•  conduct of exchange rate operations and the  definition of exchange rate policy (Article 35 of 

the ČNB Law); 

•  holding and management of foreign reserves (Articles 35(c), and 47a of the ČNB Law); 

•  non-recognition of the competences of the ECB and of the Council on the banknotes and coins 

(Article 2(2)(b), Articles 12-16, 19 to 22 of the ČNB Law); 

•  ECB’s right to impose sanctions (Article 46a of the ČNB Law).  

There are also some imperfections regarding the following issues: 

• 

the  partial  absence  of  reference  to  the  role  of  the  ECB  and  of  the  EU  in  the  collection  of 
statistics (Article 41 of the ČNB Law); 

•  non-recognition of the role of the ECB in the functioning of the payment systems (Articles 2.2 

c), 38 and 38a of the ČNB Law); 

•  non-recognition  of  the  role  of  the  ECB and  of  the  Council  in  the  appointment  of  the  external 

audit of the ČNB (Article 48(2) of the ČNB Law); 

•  absence of an obligation to comply with the Eurosystem's regime for the financial reporting of 

NCB operations (Article 48 of the ČNB Law); 

•  non-recognition of the role of the ECB in the field of international cooperation (Article 2(3) of 

the ČNB Law). 

2.1.5.  Assessment of compatibility 

As  regards  the  independence  of  the  central  bank,  the  prohibition  of  monetary  financing  and  the 
integration of the central bank into the Eurosystem, the ČNB Law is not fully compatible with the 
requirements of Article 131 TFEU for the reasons set out above. The Czech authorities are invited 
to remedy the above-mentioned incompatibilities and imperfections. 

2.2.  PRICE STABILITY 

2.2.1.  Respect of reference value 

The  12-month  average  inflation  rate,  which  is  used  for  the  convergence  assessment,  was  2.2 
percentage  points above  the  reference  value  at  the  time  of  the  last  convergence  assessment  of 
Czechia in 2024. In May 2026, the reference value was 2.7%, calculated as the average of the 12-
month  average  inflation  rates  in  Cyprus,  France  and  Denmark  plus  1.5  percentage  points.  The 
corresponding  inflation  rate  in  Czechia  was  1.9%,  i.e.  0.8  percentage  point  below  the  reference 
value.  The  12-month  average  inflation  rate  is  projected  to  increase  but  still  remain  below  the 
reference  value  by  the  end  of  2026.  It  is  projected  to  decrease  in  the  second  half  of  2027  and 
should stay below the reference value by the end of 2027. 

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Chapter 2 - Czechia 

2.2.2.  Recent inflation developments 

Following the high inflation period of 2021-2023, which started with the post-COVID recovery and 
was further aggravated by the energy price shock following Russia’s full-scale invasion of Ukraine, 
HICP  inflation  started  moderating  over  2024  (2.7%)  and  2025  (2.3%).  Annual  inflation  slowed 
down  further in the first  two months of 2026, before rebounding in the subsequent  months and 
reaching 1.8% in May 2026, driven by services inflation and a spike in energy inflation due to the 
Middle East conflict. 

HICP  inflation  excluding  energy  and  food  remained  below  headline  inflation  until  January  2024, 
before  overtaking  it  and  averaging  4.1%  in  2024  and  2.9%  in  2025.  The  decline  in  headline 
inflation  was  driven  by  contractions  in  food  prices  in  2024  and  energy  prices  in  2025.  Services 
inflation,  which  typically  is  relatively  persistent  and  driven  by  wages,  slowed  down  during  that 
period but remained well above headline inflation. While it remained above the EU average, service 
inflation was in line or below the levels recorded in other countries in the region, reflecting a more 
rapid  price  stabilisation,  after the  recovery  in  real  wages.  Unit  labour  costs increased  in  nominal 
terms  in  2024  and  2025  by  5.5%  and  4.9%,  respectively,  adding  to  inflation  pressures,  but 
remaining  on  a  downward  trajectory  compared  with  2023.  HICP  inflation  excluding  energy  and 
food remained broadly stable in the first five months of 2026, reaching 2.8% in May 2026.  

2.2.3.  Underlying factors and sustainability of inflation 

Macroeconomic policy mix and growth developments 

In  the  context  of  declining  inflation  and  increasing  consumer  confidence,  the  Czech  economy 
registered a gradual improvement in activity in 2024-2025, with GDP growth of 1.2% in 2024 and 
2.6%  in  2025.  Household  consumption  was  the  main  growth  driver,  on  the  back  of  real  wage 
improvements.  Declining  inflation,  lower policy  interest  rates,  reduced  uncertainty, as  well  as the 

24 

Table 2.1:weights  Czechia - Components of inflation(percentage change)1)in total   202020212022202320242025May-262025HICP3.33.314.812.02.72.31.91000Non-energy industrial goods2.64.212.27.21.00.60.7256Energy-1.51.731.525.53.0-4.4-3.6134Unprocessed food 6.6-1.214.112.4-3.24.71.961Processed food5.44.613.29.70.94.12.8225Services3.63.011.811.16.74.84.6324HICP excl. energy, food, alcohol and tobacco3.23.612.09.34.12.92.9580HICP at constant tax rates 3.23.414.312.02.32.01.71000Administered prices HICP3.90.813.028.58.41.50.31501) Measured by the arithmetic average of the latest 12-monthly indices relative to the arithmetic average of the 12-monthly indices in the previous period. Source: Eurostat, European Commission calculations.024681012141618Jan-20Jan-21Jan-22Jan-23Jan-24Jan-25Jan-26Jan-27CzechiaReference valueGraph 2.1: Czechia -Inflation criterion(percent, 12-month moving average)Note: The dots at the right end of the chart show the projected reference value and 12-month average inflation rate of Czechia in December 2026 and December 2027. The reference values for 2020, 2022, 2024 and 2025 refer to the reference values calculated in the previous convergence reports.Source: Eurostat, Commission's Spring 2026 Economic Forecast.-20246810121416182022202020212022202320242025CzechiaEuro areaGraph 2.2: Czechia -HICP inflation(y-o-y percentage change)Source: Eurostat. 
 
 
 
        
 
 
    
       
Convergence Report 2026 - Technical annex 
Chapter 2 - Czechia 

large  stocks  of  precautionary  savings  accumulated  by  households  over  the  previous  years,  all 
supported  the  pick-up  in  consumption.  A  loosening  of  financing  conditions  by  the  ČNB  led  to  a 
recovery  in  the  demand  for  loans,  including  mortgages.  However,  both  residential  and  non-
residential  construction  output  remained  lower  than  in  2022-2023,  despite  ongoing  strong 
absorption  of  EU  funds.  As  a  result,  gross  fixed  capital  formation  remained  below  the  levels  of 
2023, partly also due to the large one-off spike in equipment investments recorded in 2023. 

Export  activity  expanded  moderately  in  2024  and  picked  up  in  2025,  partly  due  to  stockpiling 
ahead of the introduction of tariffs in the US, as well as by strong performance of some sectors, 
such  as  the  automotive  sector.  Real  imports  increased  narrowly  in  2024,  but  also  accelerated 
significantly  in  2025.  Thus,  overall, net  exports  contributed  positively  to  growth  in  2024  but  this 
contribution was broadly neutral in 2025. 

According to the Commission’s Spring 2026 Economic Forecast, real GDP is expected to increase by 
1.8%  in  2026  and  2.4%  in  2027.  Consumer  confidence  improved  markedly  over  2025  and  was 
above  the  long-term  average  in  the  beginning  of  2026,  despite  a  significant  drop  in  April.  Real 
wages and households’ real purchasing power are expected to continue growing, driving up private 
consumption,  which  will  be  a  main  driver  of  GDP  growth.  Investment  should  also  contribute  to 
economic  growth  in  2026  and  2027,  as  looser  financing  conditions  support  expansion  in  both 
residential and non-residential construction, following the weak dwellings output recorded in 2024 
and  2025.  Exports  are  projected  to  continue  growing  in  2026  and  2027,  also  thanks  to  the 
expected  fiscal  expansion  in  some  of  Czechia’s  main  trading  partners.  However,  imports  are 
forecast  to  accelerate  at  a  faster pace,  due  to  increasing  domestic  demand.  Overall,  net  exports 
are expected to  contribute negatively to GDP in 2026-2027 and downside risks remain from the 
uncertain international trade outlook.  

The  overall  fiscal  stance  remained  contractionary  in  2024  and  2025 (11),  as  the  phasing-out  of 
energy  measures  overlapped  with  the  effects  of  the  government’s  2024  fiscal  consolidation 

(11)  The  fiscal  stance  is  measured  as  the  change  in  general  government  primary  expenditure,  net  of  the  incremental 
budgetary  impact  of  discretionary  revenue  measures,  excluding  one-off  and  cyclical  unemployment  expenditure,  but 
including expenditure financed by non-repayable support (grants) from the Recovery and Resilience Facility and other 

25 

Table 2.2:Czechia - Other inflation and cost indicators1)(annual percentage change)20202021202220232024202520262)20272)HICP inflationCzechia3.33.314.812.02.72.32.72.8Euro area0.32.68.45.52.42.13.02.3Private consumption deflatorCzechia3.04.214.38.63.13.03.72.6Euro area0.62.46.86.32.42.02.92.4Nominal compensation per employeeCzechia4.06.26.97.06.16.55.44.9Euro area-0.44.44.65.34.53.93.23.2Labour productivityCzechia-3.13.01.8-1.50.71.51.72.4Euro area-4.64.81.3-1.10.00.70.50.8Nominal unit labour costsCzechia7.33.15.08.65.54.93.62.4Euro area4.5-0.43.36.54.63.22.72.3Imports of goods deflatorCzechia-0.85.014.3-3.72.1-1.74.6-1.1Euro area-3.99.722.0-4.1-1.8-1.03.70.51) The figures for the euro area refer to the euro area with 21 Member States. 2) Commission's Spring 2026 Economic Forecast. Source: Eurostat, Commission's Spring 2026 Economic Forecast. 
 
   
 
 
 
 
Convergence Report 2026 - Technical annex 
Chapter 2 - Czechia 

package. The fiscal stance is expected to turn broadly neutral in 2026, as the contribution from the 
national budget is projected to be close to zero, and the contribution from EU-financed expenditure 
to decrease. The negative impact of the overall fiscal stance on inflation is thus expected to ease 
in  2026.  Government  consumption  contributed  positively  to  real  GDP  growth.  It  grew  by  3.1%  in 
2024 but the pace of growth slowed down to  1.5% in 2025, and is expected to stabilise at that 
level in 2026 and in 2027. Public investment stayed high at around 5% of GDP in 2025 and 2026 
with  the  help  of  EU  funds (owing  to  growing  completion  of  projects  for the  programming  period 
2021-2027, and the RRF), but it is likely to be less dynamic in 2027, as the RRF expires. 

The  Czech  National  Bank  conducts  monetary  policy  within  an  inflation  targeting  framework.  The 
use  of  the  exchange  rate  as  an  additional  monetary  policy  instrument  was  discontinued  in  April 
2017.  Due  to  the  easing  of  domestic  inflation,  since  November  2023  the  ČNB  Board  started  to 
loosen its monetary policy and cut its main policy rate (the 2-week repo rate) on several occasions. 
Till the end of 2024 the main policy rate was cut by 300 basis points to 4.0%. Following a further 
decrease  in  the  inflation  rate  in  the  first  half  of  2025,  the  ČNB  Board  continued  to  ease  its 
monetary policy stance and cut the main policy rate by 50 basis points to 3.5%. Since May 2025 
the main policy rate has remained at this level. 

Wages and labour costs 

The labour market remained tight over 2024 and 
the  first  half  of  2025,  however  displaying  some 
signs  of  loosening  in  the  second  part  of  2025. 
Despite increasing from 2.5% in Q3 2024 to 3.0% 
in Q4 2025, the unemployment rate remained the 
lowest in the EU. The significant inflow of people 
fleeing  the  war  in  Ukraine,  which  stood  at  the 
highest  levels  in  the  EU  (in  per  capita  terms), 
helped  alleviating  some  of  the  labour  market 
pressures.  At  the  same  time,  higher  female 
participation  in  the  labour  force  and  the  lagging 
growth  performance  of  some  segments  of  the 
industrial  sector  also  contributed  to  reduce  the 
gap  between 
labour  demand  and  supply. 
However, 
shortages  of  workers  persisted 
especially  at  higher  skill  levels  and  added  to  the 
pressures on nominal wages. Over 2024 and 2025, growth in compensation per employee slightly 
moderated, but remained around 6%. Following a period of negative real wage growth due to the 
high inflation, real wage growth returned positive throughout 2024 and 2025. The minimum wage 
also increased significantly, by 7.7% in January 2026.  

Real labour productivity per hour worked slightly declined between 2022 and 2024, despite strong 
wage  inflation,  recovering  only  partly  over  2025.  This  contributed  to  a  significant  increase  in 
nominal unit labour costs, by 5.5% in 2024 and 4.9% in 2025, well above domestic inflation rates. 
Thus, the compensation of employees increased as percentage of nominal GDP, returning to pre-
pandemic levels, while gross operating surplus decreased. 

External factors 

As Czechia is characterised by a high degree of trade openness, especially in goods trade, domestic 
prices are significantly influenced by developments in import prices. The import deflator for goods 
increased by 2.1% in 2024 before declining by 1.7% in 2025. This evolution followed international 
commodity price developments (energy and, to a less extent, food), which significantly determine 
fluctuations in the import deflator. In the first quarter of 2026, import prices were impacted by a 

EU  funds,  relative  to  medium-term  (10-year)  average  potential  GDP  growth  rate.  A  negative  (positive)  sign  of  the 
indicator corresponds to an expansionary (contractionary) fiscal policy stance. 

26 

-6-3036912151820202021202220232024202520262027Productivity (real GDP per person employed)Nominal compensation per employeeNominal unit labour costsHICP inflationGraph 2.3: Czechia -Inflation, productivity and wage trends(y-o-y % change)Source: Eurostat, Commission's Spring 2026 Economic Forecast. 
           
Convergence Report 2026 - Technical annex 
Chapter 2 - Czechia 

spike in fuel prices but, as of March 2026, they still recorded a 2.0% decline compared to March 
2025. The cumulated increase in the import deflator was however below that of other EU Member 
States.  

There are different possible explanations for this: the appreciation of the Czech koruna during the 
period,  a  comparatively  lower  share  of  energy  in  imports  and  the  longer-term  nature  of  gas 
contracts. In terms of effects stemming from the exchange rate, the nominal effective exchange 
rate  (measured  against  the  main  64  trading  partners)  depreciated  slightly  over  2024,  to  then 
appreciate in 2025 and the first half of 2026. The real effective exchange rate remains close to its 
historical high, as Czechia records positive current account balances and the ČNB’s official policy 
rates remain significantly higher than the ECB ones. 

Administered prices and taxes 

Items with administered prices constituted 15.3% of the HICP basket in 2025, more than the EU 
average of 12.3%. In 2024, administered prices grew well above the headline inflation, at 8.4%, to 
then  slow  down  markedly  in  2025,  to  1.5%.  The  most  important  drivers  of  these  developments 
were  energy  prices,  as  electricity  and  heating  have  the  highest  weight  in  the  basket  of 
administered  prices.  Administered  energy  prices  jumped  in  January  2024,  as  several  energy 
measures  were  phased  out,  including  price  caps  on  electricity  and  gas,  a  support  to  households 
covering part of the electricity bills, support for the electricity distributors and for heating plants. 
Negative energy price growth explains a large part of the decline in administered prices over 2025 
and the first quarter of 2026. This was partly due to the government, in January 2026, taking over 
from  electricity  consumers  the  payment  of  the  renewable  energy  levy.  In  parallel,  also 
administered  prices  growth  in  other  areas  moderated,  gradually  narrowing  the  gap  with  the 
headline inflation.  

In  terms  of  taxation,  the  largest  impact  on  inflation  came  from  changes  in  excises  for  fuels, 
tobacco and alcohol. A series of changes in VAT rates from January 2024 (from 15% to 12% for 
food  and  medicine,  and  an  increase  from  10%  to  12%  for  transport,  water  and  sewage, 
accommodation,  and  catering)  had  an  impact  on  the  corresponding  HICP  items  but  the  overall 
impact  on  headline  inflation  was  muted.  Excise  taxes  increased  on  both  tobacco  products  and 
spirits and further increases are planned for 2026 and 2027. 

Medium-term prospects 

According to the Commission’s Spring 2026 Economic Forecast, annual HICP inflation is projected 
to average 2.7% in 2026 and 2.8% in 2027. The projected acceleration is mainly attributed to the 
spike  in  fuel  prices  following  the  start  of  the  Middle  East  conflict,  partly  attenuated  in  2026  by 
lower electricity prices due to the government taking over from electricity consumers the costs of 
the renewable energy levy.  

Growth in wages is expected to continue outpacing inflation in 2026 and 2027. Services  are thus 
forecast to remain the component with the highest price growth in 2026 and, after energy, also in 
2027.  According  to  the  Commission’s  Spring  2026  Economic  Forecast,  wage  growth  is  likely  to 
continue with 5.4% in 2026 and 4.9% in 2027. The labour market remains extremely tight, Czechia 
reporting a very low unemployment rate in 2025 (2.8% vs 6.0% in EU) and high employment rates 
(82.9%  vs  76.1%  in  EU),  adding  some  pressure  on  salaries.  However,  conditions  have  been 
loosening  in  some  sectors,  notably  industry,  leading  to  an  uptick  in  the  unemployment  rate  over 
the second half of 2025. In 2026, wage growth in the public sector is expected to be higher than in 
the private sector, reflecting some catching up from lower growth rates since 2021, and to align 
with  private  wage  growth  in  2027.  Considering  a  sustained  recovery  in  economic  activity  and  in 
productivity, the growth in nominal unit labour costs should be limited at  3.6% in 2026 and 2.4% 
in  2027.  The  further  increase  in  salaries  could  be  partly  absorbed  by  companies’  profits,  with 
operating  surplus  and  mixed  income  expected  to  grow  at  a  slower  pace,  declining  as  a  share  of 
GDP and contributing less to inflation.  

27 

Convergence Report 2026 - Technical annex 
Chapter 2 - Czechia 

The  long-term  convergence  of  prices  towards  the  EU  levels  also  plays  a  role  in  determining  the 
inflation levels in the coming years. The level of consumer prices in Czechia was about 85% of the 
euro  area  average  in  2024,  suggesting  that  there  is  still  potential  for  further  price  level 
convergence  in  the  long  term.  Since  2012,  Czechia  has  steadily  converged  to  the  euro  area 
average in GDP per capita in PPS, to about 88% in 2025 (the COVID-19 pandemic brought about a 
small decrease from 92% reached in 2020). 

Some upside risks remain to the inflation outlook. More severe or long-lasting disruptions to global 
trade from the conflict in the Middle East could lead to further increases in energy and food prices, 
putting  additional  pressure  on  inflation  considering  that  the  consumer  basket  in  Czechia  has  a 
comparatively higher weight for these goods and considering that the Czech economy is one of the 
most energy intensive economies in the EU. In the context of a tight labour market, higher goods’ 
prices  could  lead  to  an  increase  in  wage  growth  beyond  the  baseline  scenario.  However,  for  the 
moment, the  risks of significant second-round effects of  wage increases  – a  wage-price spiral – 
appear to be contained. 

2.3.  PUBLIC FINANCES 

2.3.1.  Recent fiscal developments 

The  Czech  deficit  has  remained  within  the  3%  of  GDP  Treaty  reference  value  since  2024.  After 
dropping to 2.0% in 2024, on the  back of the  phase-out of energy-related measures and of the 
government consolidation package, the deficit slightly increased to 2.1% in 2025, reflecting higher 
public  wages  and  increased  government  subsidies  to  renewable  energy  sources  only  partly 
compensated by the positive impact of economic activity on public finances. 

The  revenue-to-GDP  ratio  increased  from  40.3%  in  2023  to  41.2%  in  2024  and  declined 
somewhat to 41.0% in 2025. In 2024, revenues were supported by a fiscal consolidation package, 
notably the increase in corporate income tax, the reintroduction of employee sickness insurance, an 
increase in social security contributions for state-insured persons and for the self-employed, and 
an  increase  in  recurrent  immovable  property  tax.  In  addition,  the  across-the-board  waiver of  the 
renewable  energy  levy  for  households  and firms introduced  in  response  to  the  energy  crisis was 
discontinued  at  the  end  of  2023.  In  2025,  revenue  growth  was  dampened  by  declining  windfall 
profit  tax  revenue  and  the  negative  effect  of  the  exemption  of  income  tax  on  government  bond 
yields.  

The  expenditure-to-GDP  ratio  decreased  from  44.0%  in  2023  to  43.2%  in  2025.  In  2024, 
expenditure  was  contained  by  the  reduced  indexation  of  pensions  and  decreased  subsidies,  as 
energy-related measures were phased out. In 2025, the expenditure ratio stabilised, supported by 
the  continued  reduced  indexation  of  pensions  and  declining  growth  in  social  transfers, 
counterbalancing an increase in compensation of public employees as well as higher expenditure 
on public investment. 

On  16  October  2024,  Czechia  submitted  its  national  medium-term  fiscal-structural  plan  to  the 
Council  and  to  the  Commission.  On  26  November  2024,  the  Commission  recommended  to  the 
Council  to  endorse  Czechia’s  national  medium-term  fiscal  structural  plan.  Based  on  the  plan’s 
policy commitments and macroeconomic assumptions, the net expenditure path put forward in the 
plan  is  consistent  with  the  requirements  set  out  in  Regulation  (EU)  2024/1263.  On  21  January 
2025,  the  Council  adopted  a  recommendation  endorsing  Czechia’s  national  medium-term  fiscal-
structural plan.  

On  8  July  2025,  the  Council  activated  the  national  escape  clause  (NEC)  for  increases  in  defence 
spending for Czechia covering the period from 2025 to 2028. The NEC  allows Czechia to deviate 
from, and exceed, the net expenditure path in force to increase defence expenditure as long as the 
deviation is within 1.5% of GDP, taking 2021 as a reference year. 

Net  expenditure  grew  by  4.9%  in  2025,  above  the  recommended  growth  rate  of  4.5%.  When 
considering 2024 and 2025 together, the cumulative growth rate of net expenditure is below the 

28 

Convergence Report 2026 - Technical annex 
Chapter 2 - Czechia 

recommended maximum growth rate. This is due to the phase-out of energy-related measures and 
the  government  consolidation  package  adopted  in  2024,  driving  down  net  expenditure  growth  in 
2024.  

The  fiscal  stance  was  broadly  neutral  in  2025,  as  the  slightly  contractionary  contribution  of  net 
nationally  financed  expenditure  was  offset  by  the  expansionary  contribution  of  EU  financed 
expenditure,  owing  to  the  completion  of  projects  financed  by  the  EU  structural  funds  for  the 
programming period 2021-2027. 

The general government gross debt-to-GDP ratio increased from 42.2% in 2023 to 43.3% in 2024 
and to  44.3%  in  2025.  In  2025,  the  increase  in  the  debt-to-GDP  ratio  was  mostly  driven  by  the 
debt-increasing stock-flow adjustment (+1.3 percentage points of GDP), interest expenditure (+1.3 
percentage  points  of  GDP)  and,  to  a  lesser  extent,  the  primary  deficit  (+0.8  percentage  point  of 
GDP), only partly offsetting the debt-reducing impact from nominal GDP growth. 

2.3.2.  Medium-term prospects 

Due to the electoral cycle, since 1 January 2026, Czechia has been operating under a provisional 
budget,  which  capped  monthly  spending  at  1/12th  of  the  previous  year's  expenditures.  This 
restriction limited new public investments and subsidies.  

The  final  budget  was  approved  by  the  Chamber  of  Deputies  on  11  March  2026  with  a  planned 
deficit of state budget and state funds of 3.5% of GDP. This reflects a fiscal loosening compared 
to  2025,  driven  by  increased  spending  on  social  benefits,  infrastructure,  and  state  employee 
salaries.  It  prioritises  infrastructure  investments  alongside  continued,  albeit  slightly  adjusted, 
defence spending. 

On 30 April 2026, Czechia submitted its 2026 Annual Progress Report, reporting on relevant fiscal 
outturn  data  and projections,  and the  implementation  of  reforms and  investments  responding  to 
the  main  challenges  identified  in  the  European  Semester  country-specific  recommendations.  The 
2026  Annual  Progress  Report  also  reflects  Czechia’s  biannual  reporting  on  the  progress  made  in 
delivering  on  its  recovery  and  resilience  plan  in  accordance  with  Article  27  of  Regulation  (EU) 
2021/241.  

29 

Table 2.3:Czechia - Budgetary developments and projections (as % of GDP unless indicated otherwise)Outturn and forecast 1)20202021202220232024202520261)20271)General government balance-5.6-5.0-3.1-3.7-2.0-2.1-2.8-2.9- Total revenue40.640.140.240.341.241.040.439.5- Total expenditure46.345.043.244.043.243.243.242.4   of which: - Interest expenditure0.70.71.11.31.31.31.31.3p.m.: Tax burden35.334.834.133.935.135.434.834.7Primary balance-4.9-4.2-2.0-2.4-0.7-0.8-1.5-1.6Fiscal stance 2)-0.2-1.4-0.40.62.0-0.1-0.70.6Recommended growth in net expenditure (%)4.52.52.6Growth in net expenditure (%)4.96.44.3Government gross debt36.940.742.542.243.344.345.847.2p.m: Real GDP growth (%)-5.34.02.80.01.32.61.82.41) Commission’s Spring 2026 Economic Forecast. 2) The fiscal stance is based on the increase in net expenditure (including that financed by the EU budget) relative to medium-term     potential GDP growth.  A positive (negative) sign indicates a contractionary (expansionary) fiscal stance (in % of GDP). The fiscal      stance profile in 2020-2023 does not include the temporary impact of COVID-19 emergency measures. Source: European Commission. 
 
  
 
 
Convergence Report 2026 - Technical annex 
Chapter 2 - Czechia 

Based  on  the  Commission’s  2026  Spring  Economic  Forecast,  the  general  government  deficit  is 
projected  to  rise  to  2.8%  of  GDP  in  2026,  reflecting  inter  alia  the  full  phase-out  of  the  tax  on 
energy companies’ windfall profits and taking over from electricity consumers the payment of the 
renewable energy levy.  

In  spring  2026,  the  Commission  assessed  Czechia’s  risks  of  compliance  with  the  recommended 
maximum  growth  of  net  expenditure  in  2026,  based  on  outturn  data  for  2024-2025  and  the 
Commission’s  Spring  2026  Economic  Forecast,  which  incorporates  information  provided  in  the 
Annual  Progress  Report.  Net  expenditure  is  projected  to  grow  by  6.4%  in  2026,  above  the 
recommended growth of 2.5%. The deviation above the recommended maximum is equivalent to 
an  annual  deviation  of  1.5%  of  GDP  and  a  cumulative  deviation  of  0.1%  of  GDP.  Taking  the 
flexibility under the NEC into account, the  projected  deviation  for 2026 is within the flexibility of 
the national escape clause based on current projections for defence spending. 

The general government debt-to-GDP ratio is forecast to increase to 45.8% in 2026 and to reach 
47.2% in 2027, driven by the negative primary balance, the higher interest expenditure and, to a 
lesser extent, the debt-increasing stock-flow adjustment, partly offset by nominal GDP growth. 

Based  on  the  Commission’s  estimates,  the  fiscal  stance  is  projected  to  become  expansionary  in 
2026, at –0.7% of GDP. The expansionary fiscal stance in 2026 is driven by the contribution from 
the national budget. The fiscal stance is expected to turn contractionary in 2027 (0.6% of GDP), on 
account of the negative impulse from EU funded expenditure following the expiry of the RRF. 

Debt sustainability risks appear medium over the 
medium  term.  Government  debt  is  projected  to 
increase  from  around  44%  in  2025  to  around 
56%  of  GDP  in  2036.  This  projection  assumes 
that  the  structural  primary  deficit  deteriorates 
from 0.1% in 2025 to 0.5% of GDP in 2026 and 
remains  at  that  level  (excluding  changes  in  the 
cost of ageing) over the projection period (12). 

The  sensitivity  to  possible  macro-fiscal  shocks 
also contributes to this assessment. In particular, 
if  the  structural  primary  deficit  increased  by 
another  0.5  percentage  point,  the  projected  debt 
ratio in 2036 would be 6 percentage points higher 
than in the baseline. 

Finally, several additional risk factors need to be considered in the assessment. On the one hand, 
the  announced  backtracking  on  the  pension  reforms  adopted  at  the  end of  2024  (as  included  in 
the policy statement of the new government) can constitute a risk-increasing factor, given that the 
pension  reforms  have  the  potential  to  mitigate  some  of  the  long-term  ageing-related  fiscal 
sustainability  risks.  On  the  other  hand,  risk-mitigating  factors  include  (i)  the  reduced  share  of 
short-term  debt,  (ii)  the  relatively  stable  financing  sources  with  a  diversified  and  large  investor 
base, and (iii) the currency denomination of debt. 

The  Czech  national  fiscal  framework  performs  well  but  is  increasingly  challenged.  The  general 
government  debt  has  increased,  compliance  with  the  structural  balance  rule  requires  additional 
consolidation, and defence spending above 2% of GDP is excluded from the national expenditure 
framework. Amendment of the national expenditure framework is underway, including linking the 
national rule to the EU governance framework, while excluding infrastructure investment from the 
national  expenditure  framework.  The  general  government  debt  rule  and  structural  balance  rule 

(12)  This is in line with the no-fiscal-policy-change assumption as from 2027 and implies that the adjustment that Czechia 
commits  to  in  its  medium-term  plan  beyond  2026  is  not  taken  into  account  in  the  projection.  For  details  on  the 
methodology,  see  European  Commission  (2026),  Debt  Sustainability  Monitor  2025,  Institutional  Paper  332,  February 
2026. 

30 

-101232024202520262027Expenditure financed by RRF grants and EU funds (e)Other capital expenditure (d)Nationally financed investment (c)Net nationally financed  primary current expenditure (b)Fiscal stance (f=a+e)Net nationally financed  primary expenditure (a=b+c+d)ExpansionaryContractionarySource: Commission's Spring 2026 Economic Forecast.Graph 2.4: Czechia -Fiscal stance and its components(percent of GDP) 
         
Convergence Report 2026 - Technical annex 
Chapter 2 - Czechia 

have  been  complied  with  in  2024  but  the  Czech  Fiscal  Council  (CFC)  (13)  underlined  that  the 
reference  forecast  was  not  the  most  up  to  date.  Local  governments’  finances  are  healthy,  but 
about 10% of local municipalities failed to comply with their debt rule and 11 municipalities could 
not implement the debt reduction rule. 

The  CFC  is  well-resourced  and  with  a  relatively  narrow  mandate.  Macroeconomic  and  budgetary 
forecasts were evaluated as realistic by the Committee on Budgetary Forecasts (CBF), which is not 
an  Independent  Fiscal  Institution  (IFI).  The  CBF  ex-post  assessment  of  the  macroeconomic  and 
budgetary  forecasts  over  2023-2024  found  them  of  high  quality.  The  effective  staggering 
mandates of the CFC members have been loosened recently, access to information appears to be 
an issue for the CFC and the IFI has not been subject to any external review. These are examples 
of  aspects  of  the  Czech  fiscal  framework  which  will  be  affected  by  the  amended  Budgetary 
Framework Directive (2011/85/EU), part of the Economic Governance Review of 2024. 

2.4.  EXCHANGE RATE STABILITY 

The Czech koruna does not participate in ERM II. Since the late 1990s, the ČNB has been operating 
an  explicit  inflation  targeting  framework  combined  with  a  floating  exchange  rate  regime,  that 
allows  for  foreign  exchange  market  interventions  by  the  central  bank (14).  The  ČNB  is  legally 
allowed  to  conduct  foreign  exchange  interventions  to  influence  the  Czech  koruna  exchange  rate 
and moderate excessive exchange rate volatility in exceptional situations (e.g., in 2022). 

The  ČNB  terminated  its  exchange  rate  commitment  in  April  2017.  Following  a  period  of  relative 
stability in 2018-2019, the Czech koruna has experienced significant volatility since the COVID-19 
pandemic.  It  depreciated  significantly  in  2020,  due  to  an  economic  downturn  that  was  more 
pronounced than expected. This was then followed by a  moderate appreciation trend  up to early 
2022. In 2022, pressure for depreciation following Russia’s full-scale invasion of Ukraine triggered 
stabilising  interventions  by  the  ČNB  on  the  foreign  exchange  market  between  May  and  October 
2022.  In  October  2022,  the  Czech  koruna  was  trading  against  the  euro  at  around  24.5.  It  then 
slightly  appreciated  until  April  2023,  after  when  it  started  to  depreciate  again  on  account  of 
market  expectations  of  a  decline  in  interest  rates,  a  trend  that  lasted  until  April  2024.  Between 
April  2024  and  January  2025,  the  Czech  koruna  fluctuated  at  around  25.1  CZK  per  euro,  before 
appreciating again. By the end of 2025, the Czech koruna traded at around 24.3 CZK per euro and 
continued to fluctuate around that level till May 2026.  

The  three-month  interest  rate  differential  vis-à-vis  the  euro  area  reached  a  peak  by  mid-2022 
before returning to close to after-pandemic levels of approximately 100 basis points by mid-2024. 
The strong easing cycle of the ČNB between December 2023 and May 2025 led to a steady and 
large decrease in the Czech three-month PRIBOR and, accordingly, in the spread vis-à-vis the euro 

(13)  https://www.rozpoctovarada.cz/en/publikace/report-on-compliance-with-the-rules-of-budgetary-responsibility-for-2024/. 
(14)  Since 2010, the inflation target has been set at 2% with a tolerance band of +/- 1%. 

31 

22242628202020212022202320242025Graph 2.5: Czechia -CZK/EUR exchange rate(monthly averages)Source: ECB.0100200300400500600700800202020212022202320242025Graph 2.6: Czechia -3-M Pribor spread to 3-M Euribor(basis points, monthly values)Source: Czech national Bank, Eurostat and Refinitiv Workspace. 
 
 
   
          
Convergence Report 2026 - Technical annex 
Chapter 2 - Czechia 

area,  which  dropped  below  100  basis  points  level  in  the  second  half  of  2024.  As  of  September 
2024, the spread started to widen slightly amid the slow-down of the monetary policy easing by 
the  ČNB  and  a  continuation  of  the  monetary  policy  easing  by  the  ECB.  The  moderate  widening 
continued till mid-2025. The spread stabilised afterwards around 150 basis points and registered 
133 basis points in May 2026. 

International reserves held by the ČNB increased from EUR 134 billion at the end of 2023 (42% of 
GDP) to about EUR 150 billion (43% of GDP) at the end of 2025. The main driving factors behind 
these  changes  were  an  increase  in  foreign  currency  reserves  and  gold  holdings.  The  reserves 
increased in the first months of 2026 and stood at around EUR 156 billion in May 2026. 

2.5.  LONG-TERM INTEREST RATES 

Long-term  interest  rates  in  Czechia,  which  are  used  for  the  convergence  examination,  reflect 
secondary market yields on  a basket of  government bonds with an average residual  maturity of 
close to, but below, 10 years. 

The  Czech  12-month  average  long-term  interest  rate,  relevant  for  the  assessment  of  the  Treaty 
criterion, was 1.3 percentage points below the reference value at the time of the last convergence 
assessment in 2024. In May 2026, the reference value, given by the average of long-term interest 
rates in Cyprus, France and Denmark plus 2 percentage points, stood at  5.1%. In that month, the 
12-month  moving  average  of  the  yield  on  the  Czech  benchmark  bond  stood  at  4.5%,  i.e. 
0.6 percentage point below the reference value. 

The  long-term  interest  rate  of  Czechia  decreased  to  3.8%  in  September  2024  and  reached  lows 
unseen for more than 2 years following the substantial ČNB interest rate cuts. As the ČNB stopped 
its  monetary  policy  easing  in  May  2025,  the  long-term  interest  rates  experienced  a  slight,  but 
steady, upward movement and by the end of 2025 the long-term interest rates reached 4.7%, in 
line with rising yields in the region and inflationary fears. During the first few months of 2026, the 
long-term interest rate decreased slightly, but in March increased again amid growing inflationary 
pressures and stood at 4.9% in May 2026.  

The spread between the long-term interest rates in Germany and Czechia fluctuated around 175 
basis  points  during  the  last  2  years.  In  February  2024  the  spread  had  narrowed  to  143  basis 
points, however by the end of that year it increased to 195 basis points. Subsequently, after a brief 
fall in the first quarter of 2025 (to 152 basis points in March) it increased back to 184 basis points 
by the end of that year. During the first two months of 2026 the spread decreased slightly, but in 
March picked up marginally and reached 184 basis points in May 2026.  

32 

0246Jan-20Jan-21Jan-22Jan-23Jan-24Jan-25Jan-26CzechiaReference valueGraph 2.7: Czechia -Long-term interest rate criterion(percent, 12-month moving average)Source: European Commission.-20246202020212022202320242025CzechiaGermanyGraph 2.8: Czechia-Long-term interest rates(percent, monthly values)Source: Eurostat. 
 
       
       
Convergence Report 2026 - Technical annex 
Chapter 2 - Czechia 

2.6.  ADDITIONAL FACTORS 

The  Treaty  (Article  140  TFEU)  calls  for  an  examination  of  other  factors  relevant  to  economic 
integration and convergence to be considered in the assessment. The assessment of the additional 
factors – including developments in the balance of payments, product, labour and financial market 
integration – gives an important indication of a Member  State's ability to integrate into the euro 
area without difficulties. 

In November 2025, the Commission published its 15th Alert Mechanism Report (AMR 2026) under 
the  Macroeconomic  Imbalance  Procedure  (MIP  –  see  also  Box  1.6),  which  highlighted  issues 
relating to  price competitiveness and the real effective exchange  rate in Czechia.  However, since 
overall risks remained limited, the report concluded that no In-Depth Review (IDR) was warranted 
for  Czechia.  Concerns  in  terms  of  price  competitiveness  are  related  to  nominal  unit  labour  costs 
(ULC), which have increased significantly in 2023 and 2024, as productivity was dampened by the 
slow  pick-up  in  economic  activity,  while  wages  continued  growing,  albeit  at  a  slowing  pace.  A 
slowdown in ULC growth is expected in 2025-2027, as economic activity grows and wage growth 
decelerates.  The  current  account  turned  positive  in  2024  and  is  expected  to  remain  so  over  the 
following  years,  also  on  the  back  of  a  positive  trade  balance.  House  prices  grew  faster  than 
incomes over the past decade and are estimated to be overvalued by close to 20% in 2024. House 
prices in nominal terms declined over 2023, but accelerated through 2024 and 2025. A structural 
supply constraint remains, which could continue to put upside pressures on house prices. 

Czechia’s  recovery  and  resilience  plan (RRP) includes  measures  to  address  a  series  of  structural 
challenges,  in synergy with  other  EU  funds,  including  cohesion  policy  funds,  to  boost  its 
competitiveness  and  stimulate  sustainable  growth  and  reduce  the  country’s  territorial  and  social 
disparities. The RRF funding provides Czechia with EUR 8.4 billion in grants and EUR 343 million in 
loans over the 2021-2026 period. 

Czechia has submitted six payment requests, five of which have already been assessed resulting in 
an overall disbursement of EUR 6.8 billion by the end of May 2026 and has fulfilled approximately 
71% of the milestones and targets in the plan. Key reforms in Czechia’s RRP include those in the 
areas  of  renewable  energy,  zero-emission  mobility,  long-term  care,  affordable  housing,  and 
conflict of interest and lobbying rules. 

In addition to the RRF funding, cohesion policy provides Czechia with EUR 24.2 billion for the 2021-
2027  period.  Cohesion  policy  financing  aims  particularly  to  further  support  Czechia’s 
competitiveness,  by  helping  research  and  innovation,  SMEs  competitiveness,  improving  energy 
efficiency, modernisation of public employment services, skills development and lifelong learning, 
as well as work-life balance and equal opportunities. 

2.6.1.  Developments in the balance of payments 

According to balance of payments data, Czechia’s external balance (i.e., the combined current and 
capital account) recorded a surplus of 3.3% of GDP in 2024 and 2.2% in 2025, driven mainly by 
changes in the balance of trade in goods and services. Exports increased in 2024 and 2025 due to 
an overall increase in export prices (the export deflator increased by 4.3% in 2024 and declined by 
-0.6% in 2025)  but also in volumes (1.5% in 2024 and 3.9% in  2025). The automotive industry, 
one of the main engines of growth, continued recovering after the drop suffered during the COVID-
19 pandemic. Imports also increased during the period, driven by higher prices of services imports 
in 2024 and internal demand growth in 2025. In volume terms, imports grew by 0.5% in 2024 and 
5.0% in 2025, in both years the main driver was import of services. Import price volatility declined 
significantly  over  the  period,  as  commodity  prices  stabilised.  Thus,  the  import  deflator  stood  at 
3.2% in 2024, followed by a subsequent decline of -1.3% in 2025, as wholesale commodity prices 
declined.  

The  services  balance  was  positive  in  both  years,  although  the  values  of  services  exported  and 
imported  are  significantly  lower  than  those  of  goods.  The  main  drivers  of  the  services  balance 
were  telecom  and  IT  services.  The  primary  income  balance  registered  an  improvement  in  2025     

33 

Convergence Report 2026 - Technical annex 
Chapter 2 - Czechia 

(-4.6% of GDP, up from a dip of -5.3% in 2022) as the profitability of foreign-owned enterprises 
decreased as a share of GDP.  

The capital account also improved in  2024  (1.7% of GDP compared to 0.6% in 2022), thanks to 
growth  in  the  utilisation  of  funds  from  the  EU  budget  as  well  as  to  the  reductions  in  emission 
allowance (ETS) prices. The capital account stabilised in 2025, at 1.5% of GDP.  

Balance  of  payment  developments  were  positive  also  in  the  financial  account  (1.2%  of  GDP  in 
2023 and 3.3% of GDP in 2024). The strong increase in 2024 was driven by a record net capital 
outflow  from  Czech  households  and  firms  (3.9%  of  GDP),  involving  both  equity  and  debt 
investment. Similar developments in financial accounts are expected for 2025 and 2026. The net 
international  investment  position  (NIIP)  improved,  from  -20.2%  of  GDP  in  2022  to  -9.8%  at  the 
end of 2025, due to improved net external lending and nominal GDP growth. In nominal terms, the 
NIIP deficit increased by 242 billion CZK between Q4 2024 and Q4 2025, to 837 billion CZK. 

compared 

competitiveness 

The  long-term  upward  trend  in  Czechia’s  export 
market  share  has  slowed  down  since  2018.  The 
export  market  share  in  volumes  declined  during 
the  pandemic  years  but  recovered  in  2023  and 
2024.  Several  measures  are  signalling  losses  in 
cost 
trading 
partners.  As  already  mentioned,  nominal  unit 
labour  costs  increased  markedly  between  2023 
and  2025  as  weak  but  improving  economic 
activity dampened productivity, while labour costs 
grew, compensating previous losses in real wages 
induced  by  inflation.  Cost  competitiveness  was 
also  influenced  negatively  by  the  movements  in 
the  nominal  effective  exchange  rate  (NEER),  as 
the Czech koruna strengthened significantly during part of 2022 and part of 2023, also supported 

to 

34 

Table 2.4:Czechia - Balance of payments(percentage of GDP)202020212022202320242025Current account1.8-2.1-4.7-0.11.70.7of which: Balance of trade in goods4.81.7-0.33.85.14.6               Balance of trade in services1.91.91.41.11.41.2               Primary income balance -4.5-5.3-5.3-4.4-4.3-4.6               Secondary income balance-0.5-0.4-0.5-0.6-0.5-0.5Capital account1.11.70.61.11.61.5External balance 1)2.9-0.4-4.11.03.32.2Financial account2.8-0.3-4.11.23.31.7of which: Direct investment-2.6-0.5-1.2-1.0-0.2-0.6               Portfolio investment-2.31.24.71.2-2.40.4               Other investment 2)6.8-5.7-3.30.55.4-1.1               Change in reserves0.84.7-4.40.50.53.1Financial account without reserves2.0-5.00.20.72.8-1.3Errors and omissions-0.10.1-0.10.10.0-0.5Gross capital formation24.728.131.028.226.326.8Gross saving25.227.626.828.328.428.5Net international investment position-16.0-14.9-20.2-14.4-7.4-9.81) The combined current and capital account.2) Including financial derivatives.Sources: Eurostat, European Commission calculations, the Czech National Bank.9095100105110115120125130202020212022202320242025Graph 2.9: Czechia -Effective exchange ratesNEERREER, HICP-deflatedREER, ULC-deflated(vs 36 trading partners; monthly averages;index numbers, 2020 = 100)Source: European Commission. 
 
        
 
 
       
Convergence Report 2026 - Technical annex 
Chapter 2 - Czechia 

by interventions by the ČNB. The NEER weakened in 2024, resumed a positive trend in 2025 and 
weakened again in the  first  months of 2026. Due to comparatively higher inflation in Czechia in 
2022  and  2023, the  real  effective  exchange  rates  based  on  HICP  and  core  inflation  appreciated 
even more than implied by the evolution of the NEER during the period. As inflation has declined 
significantly since the beginning of 2024, this gap is not expected to significantly widen further. 

According  to  the  Commission’s  Spring  2026  Economic  Forecast,  the  external  balance  (based  on 
national accounts data) is expected to  make a negative contribution to real GDP growth in 2026, 
as the positive effect of export growth is counterbalanced by solid imports growth, on the back of 
a recovery of internal demand and the spike in fuel prices. The contribution is then expected to turn 
positive in 2027, following a decline in prices of imported energy commodities.  

2.6.2.  Market integration 

The Czech economy is highly integrated with the euro area through trade and investment linkages. 
The trade openness (see Table 2.5 for a definition) of Czechia decreased in 2025 and was below to 
its long-term average of around 85% of GDP. The share of trade with euro area countries stood at 
around 48% of GDP in 2025. In 2025, Czechia’s main trading partners within the euro area were 
Germany, Slovakia and the Netherlands, while the main trade partners outside the euro area were 
Poland and China.  

FDI inflows remained stable between 2022 and 2024, close to 3% of GDP (15). The largest part of 
the FDI inflows was represented by reinvested earnings, while new capital participations remained 
low, representing only 3% of net flows in 2024. Nevertheless, the stock of FDIs as percentage of 
GDP  reached  67%  in  2024.  More  than  half  of  the  stock  of  FDIs  in  2024  is  accounted  for  by 
investors  from  Austria,  Belgium,  Germany,  France,  the  Netherlands  and  Luxembourg.  Financial 
services,  manufacturing,  real  estate  and  trade  are  the  main  target  sectors  for  FDI  inflows.  The 
geographical  proximity  to  EU  core  markets,  a  good  infrastructure  and  a  highly  educated  labour 
force have supported the attractiveness of the country for foreign investors. 

As price competitiveness concerns persisted, due to the rapid growth in unit labour costs, Czechia’s 
position  in  the  IMD’s  World  Competitiveness  Index  worsened  significantly  in  2024,  moving  down 
the rankings from 18th to 29th position. However, it recovered in 2025 thanks to a steady economic 
performance  to  25th  position.  The  improvements  are  especially  in  terms  of  employment,  price 
developments and performance of the domestic economy, while Czechia records its best rankings 
in  the  institutional  and  societal  framework  dimensions.  According  to  the  World  Bank’s  2024 
Worldwide Governance Indicators, Czechia ranks higher than the average of the euro area Member 
States, in particular in relation to indicators that measure regulatory quality, political stability and 

(15)  See the database on foreign direct investment statistics of the Czech National Bank. 

35 

Table 2.5:Czechia - Market integration202020212022202320242025Trade openness 1) (%)81.584.789.981.782.980.3Trade with euro area in goods & services 2)+3) (%)50.152.355.150.149.648.1IMD World Competitiveness Ranking 4)333426182925Internal Market Transposition Deficit 5) (%)1.52.41.40.90.70.9Real house price index 6)135.6155.7159.3144.3147.0157.5 1) (Imports + Exports of goods and services / (2 x GDP at current market prices)) x 100 (Foreign Trade Statistics, Balance of Payments). 2) (Imports + Exports of goods with EA-21 / (2 x GDP at current market prices)) x 100 (Foreign Trade Statistics). 3) Trade in services with EA-21 (average credit and debit in % of GDP at current prices) (Balance of Payments). 4) International Institute for Management Development (IMD). 5) Percentage of internal market directives not yet communicated as having been transposed, relative to the total. 6) Deflated house price index (2015=100) (Eurostat). Sources: Eurostat, World Bank, International Institute for Management Development, European Commission calculations. 
 
    
 
 
 
Convergence Report 2026 - Technical annex 
Chapter 2 - Czechia 

absence  of  violence,  the  rule  of  law,  control  of  corruption  and  government  effectiveness (16). 
According  to  the  2026  Country  Report, Czechia  faces challenges in  the  application  of  lawmaking 
rules, especially in terms of a consistent use of Regulatory Impact Assessments. The perception of 
corruption when doing business in Czechia is around the EU average, and the level of experienced 
corruption is low. Corruption  cases are largely investigated and prosecuted, yet there is room for 
improvement as regards high-level corruption cases. The justice system is performing efficiently, 
while performing moderately well in digitalising the justice system (17), although the rollout of the 
e-file system continues to face delays. According to the 2025 Single Market Scoreboard, Czechia's 
transposition  deficit  of  Single  Market  Directives  was  at  0.9%,  down  from  2.4%  in  2022.  This  is 
below the EU average (1.1%) but above the target (0.5%) proposed by the European Commission 
in the Single Market Act (2011). 

and 

Plan. 

Efforts  are  being  made  to  address  any  pending 
corruption  issues  in  Czechia,  including  by  the 
reforms  implemented  under  the  Recovery  and 
institutional 
Legal 
Resilience 
frameworks  to  address  corruption  are  broadly  in 
place.  Reforms  to  the  whistleblowing,  framework 
a  lobbying  reform,  or  a  set  of  measures  to 
strengthen the legislative framework in the areas 
of courts, judges, prosecutors and bailiffs are part 
of  the  Recovery  and  Resilience  Plan  and  have 
already  been  implemented.  However,  room  for 
improvement remains.  

Czechia  has  notified  a  complete  transposition  of  the  5th  Anti-Money  Laundering  Directive.  The 
Commission has assessed the transposition as complete and in conformity.  

Czechia has developed a robust anti-money laundering and countering the financing of terrorism 
framework  that  complies  well  with  international  standards,  particularly  following  significant 
reforms to address deficiencies identified in earlier evaluations. In 2022 the country underwent a 
3rd  Enhanced  Follow-up  Report  &  Technical  Compliance  Re-Rating  by  Moneyval.  While  the 
technical  compliance  is  high,  evaluations  have  highlighted  the  need  to  improve  the  practical 
effectiveness of the system, particularly regarding law enforcement outcomes, investigations, and 
prosecution. 

The  Czech  labour  market  continued  to  remain  tight  in  2024  and  2025,  recording  the  lowest 
unemployment rate in the EU. However, the unemployment rate stabilised in 2024 and increased 
slightly  over  2025.  The  employment  rate  of  those  aged  between  20  and  64  has  increased 
constantly  over  the  past  years  and  reached  83%  in  2025,  which  was  seven  percentage  points 
above  the  EU  average.  Labour  shortages  and  skill  mismatches  remain  pervasive,  hampering 
Czechia’s  growth  potential  and  increasing  wage  pressure,  with  implications  also  for  inflation. 
Cross-border migration flows have increased  significantly in 2022 and 2023 as Czechia was the 
country with the highest number of people displaced from Ukraine, per capita, in the EU. Progress 
was  made  in  integrating  this  labour  force  in  the  economy,  but  the  impact  on  the  labour  market 
remains condensed in low-qualified jobs.  

The financial sector in Czechia continues to be smaller and somewhat less developed than in the 
euro  area.  Assets  managed  by  the  financial  sector  amounted  to  242%  of  GDP  in  2024.  This  is 
much  less  than  in  the  euro  area  (707%  of  GDP)  but  higher  than  in  the  five  euro  area  Member 
States with the smallest financial sectors. The financial sector’s relative size has decreased in both 
the euro area (by 99 percentage points) and Czechia (by 12 percentage points) since 2020. Banks 

(16)  A Member State is considered to have a ‘low’ (‘high') ranking compared with the average five euro area Member States 
with  the  lowest  scores  for  each  indicator  if its  score  is at  least  0.3  percentage  point  lower  (higher)  than  that  of this 
group of five euro area Member States. 

(17)  European Commission (2026), 2026 Country Report on Czechia, pp. 74-78. See also Annual Rule of Law Report, country 

chapter on Czechia. 

36 

0.00.61.21.8Voice and accountabilityPolitical stability andabsence ofviolence/terrorismGovernmenteffectivenessRegulatory qualityRule of lawControl of corruptionCzechiaEuro area average five lowestEuro area averageGraph 2.10: Czechia -World Bank's 2024 Worldwide Governance IndicatorsNote: Estimate of governance ranges from -2.5 (weak) to 2.5 (strong). Source: World Bank. 
   
Convergence Report 2026 - Technical annex 
Chapter 2 - Czechia 

dominate the Czech financial sector and made up around 53% of the financial sector’s assets in 
2024.  The  central  bank  is  the  second  largest  holder  of  financial  assets  with  a  share  of  18%  in 
2024  (more  than  double  that  of  the  euro  area  average).  The  rest  of  financial  intermediaries 
constituted slightly more than one quarter of the financial sector assets holdings in 2024, which is 
about  half  of  the  share  observed  for  the  euro  area.  This  lower  share  is close  to  that  of  the  five 
euro  area  Member  States  with  the  smallest  financial  sector  and  reflects  the  relative 
underdevelopment of insurance corporations and pension funds.  

As to the financing of the economy, outstanding liabilities as a share of GDP are much lower than 
in the euro area (345% of GDP vs. 722% of GDP in the euro area) but comparable to that of the 
euro  area  Member  States  with  the  lowest  financing  needs.  Like  in  the  euro  area,  loans  are  the 
dominant source of funding. However, Czechia has less developed bond and equity markets than 
the  euro  area,  and  market  financing  (especially  debt  securities  and  listed  shares)  is  relatively 
underdeveloped. Equity and private sector debt markets represented 8% of liabilities in 2024 (and 
30% of GDP altogether), compared to 19% of liabilities in the euro area (where private sector debt 
and listed stocks amounted to 73% and 64% of GDP respectively). Czechia is still comparable to 
the five euro area Member States with the smallest national financing needs and it has a higher 
share of private debt securities in the financing of the economy than these Member States. 

Unlisted shares and other equity made up 41% of total liabilities in 2024, which is higher than in 
the euro area (37%). Trade credits and advances play a bigger role in the financing of the economy 
in Czechia than in the euro area. Relative to GDP, the bond market is smaller in Czechia than in the 
euro area, which reflects the lower level of public debt in Czechia. 

37 

Table 2.6:Czechia - Allocation of assets by financial sub-sectorRatio to GDP (%)CZEAEA 5 smallest202020242020202420202024Financial corporations (total)254242806707199180Central bank614477516144Monetary financial institutions1331283082759393Other financial intermediaries32361951772015Non-MMF investment funds1)101912512546Insurance co. and Pension Funds1814102802223Share of total (%)CZEAEA 5 smallest202020242020202420202024Central bank24181073024Monetary financial institutions525338394752Other financial intermediaries13152425108Non-MMF investment funds48151823Insurance co. and Pension Funds76131111131) MMF stands for money market funds.Source: Eurostat. 
 
    
 
 
Convergence Report 2026 - Technical annex 
Chapter 2 - Czechia 

38 

The  Czech  financial  sector  is  highly  integrated 
into 
the  euro  area’s  financial  sector.  This 
integration is noticeable in the ownership linkages 
of  the  banking  system.  Foreign  institutions  held 
approximatively  80%  of  the  banking  sector's 
assets via their local branches and subsidiaries in 
2024.  Concentration  in  the  banking  sector,  as 
measured by the market share of the largest five 
credit  institutions  in  total  assets,  amounted  for 
65%  in  2024  and  thus  continued  to  exceed  the 
euro  area  average  of  50%  by  15  percentage 
points. 

Table 2.7:Czechia - Financing of the economy1)Ratio to GDP (%)CZEAEA 5 smallest202020242020202420202024Liabilities (total)350345813722325305Loans949725121510392Non-financial co. debt securities65151232Financial co. debt securities2015686135Government debt securities373894724943Listed shares10107164812Unlisted shares74711961876554Other equity737082765864Trade credits and advances373936363633Share of total (%)CZEAEA 5 smallest202020242020202420202024Loans272831303230Non-financial co. debt securities212211Financial co. debt securities648812Government debt securities111112101514Listed shares339924Unlisted shares212124262019Other equity212010111720Trade credits and advances10114510111) The table focuses on the financing needs of a country and how these are met by the financial system. The table is constructed    from the liabilities of all economic sectors, but only considers loans, debt securities, equity and trade credits. The sum of liabilities    in the table only reflects the total for the liabilities considered.Source: Eurostat.020406080100CZ, 2020CZ, 2024EA, 2020EA, 2024Concentration in the banking sector (CR5 ratio)Share of foreign institutions as % of total assetsGraph 2.11: Czechia -Foreign ownership and concentration in the banking sector(in percent, weighted averages)Source: ECB, Structural financial indicators.  
 
    
 
 
 
    
3.  HUNGARY 

3.1.  LEGAL COMPATIBILITY 

3.1.1.  Introduction 

The  main  rules  governing  the  Magyar  Nemzeti  Bank  (MNB  –  Hungarian  national  bank,  hereafter 
MNB) are laid down in Article 41 of the Hungarian Fundamental Law (18) and Act CXXXIX 2013 (19) 
on  the  MNB  (hereafter:  MNB  Act).  The  amendments  passed  with  regard  to  MNB  law  (20)  did  not 
solve  the  incompatibilities  and  imperfections  mentioned  in  the  Commission’s  2024  Convergence 
Report. Therefore, the issues raised in the Commission’s 2024 Convergence Report remain largely 
relevant and are repeated in this year's assessment.  

3.1.2.  Central bank independence 

Pursuant to Article 176 of the MNB Act, the MNB has become the legal successor of the liabilities 
of the former Hungarian Financial Supervisory Authority (HFSA), which ceased to exist on 1 October 
2013. This legal succession also implies the transfer of all employees from the HFSA to the MNB 
pursuant  to  Article  183  of  the  MNB  Act.  The  principle  of  central  bank  independence  pursuant  to 
Article  130  TFEU  implies  that  the  MNB  must  have  sufficient  financial,  material,  and  human 
resources  to  perform  its  ESCB and  ECB-related  tasks,  in  addition  to  its  national  tasks.  The  tasks 
transferred from the HFSA to the MNB must not affect its ability to carry out these tasks from an 
operational and financial point of view. 

Further to this principle, the MNB should be fully insulated from all financial obligations resulting 
from any HFSA activities. Contractual relationships in the period prior to 1 October 2013 including, 
amongst  others,  all  employment  relations  between  any  new  MNB  staff  member  and  the  former 
HFSA can be continued only with the proviso that the continuation does not impinge on the MNB's 
independence  and  its  power  to  fully  carry  out  its  duties  under  the  Treaties.  Against  this 
background, Article 176 and 183 of the MNB Act should be aligned to the principle of central bank 
independence as enshrined in Article 130 of the TFEU. 

The Commission took note of the Government Decree 474/2024 (XII. 31.) on the implementation of 
the  law  on  the  resilience  of  critical  entities  (21)  as  amended  by  Law  LXXI  of  2025  on  the 
amendment  of  laws  supporting  the  efficiency  of  law  enforcement  (22)  effective  as  of  1  January 
2026,  which  may  impede  on  central  bank  independence  due  to  inconsistencies  between  Law 
LXXXIV  of  2024  on  the  resilience  of  critical  entities  and  its  implementing  Decree  regarding  the 
MNB’s designation as a critical entity. 

According to Article 9(7) of the MNB Act, the Governor and the Deputy Governors shall take an oath 
before  the  President  of  the  Republic  and  other  members  of  the  Monetary  Council  before  the 
Parliament upon taking office with the words required by Law XXVII of 2008 as amended on the 
oath and solemn promise of certain public officials. The Law requires making an oath with words ’I, 
(name  of  the  person  taking  the  oath),  hereby  make  an  oath  to  be  faithful  to  Hungary  and to  its 
Fundamental Law, to comply with its laws, and make sure others citizens comply with them too; I 
will  fulfil  the  duties  arising  from  my  position  as  a  (name  of  the  position)  for  the  benefit  of  the 
Hungarian  nation  […]’.  The  oath  does  not  contain  any  reference  to  the  principle  of  central  bank 
independence enshrined in Article 130 TFEU. What is more, the Fundamental Law only contains an 
indirect  reference  to  EU  law.  Since  the  Governor  and  the  Deputy  Governors  as  members  of  the 

(18)  Magyarország Alaptörvénye, Magyar Közlöny 2013/163. (X.3.). 
(19)  A Magyar Nemzeti Bankról szóló 2013. évi CXXXIX. törvény, Magyar Közlöny 2013/158. (IX.26.). 
(20)  The assessment of the compatibility of the MNB Law takes into consideration the consolidated version of the law as of 

11 January 2026 and communicated by the Hungarian authorities on February 2026. 

(21)  A  kritikus  szervezetek  ellenálló  képességéről  szóló  törvény  végrehajtásáról  szóló  474/2024.  (XII.  31.)  Korm.  rendelet, 

Magyar Közlöny 2024/139. 

(22)  A rendészeti feladatellátás hatékonyságát támogató törvények módosításáról 2025. évi LXXI. törvény, Magyar Közlöny, 

124/2025 (X.22.). 

39 

 
Convergence Report 2026 - Technical annex 
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Monetary Council are involved in the performance of ESCB related tasks, the oath should include a 
clear  reference  to  the  requirement  of  central  bank  independence  enshrined  in  Article  130  TFEU. 
Therefore, the oath as it stands is an imperfection as regards the institutional independence of the 
MNB, and the wording of the oath should be adapted to be in line with Article 130 TFEU.  

Article  153(6)  of  the  MNB  Act  provides  for  the  possibility  for  members  of  the  Monetary  Council 
(including  the  Governor)  and  MNB  employees  to  take  on  roles  in  the  management,  boards  of 
trustees or supervisory boards of foundations and business associations under majority ownership 
of the MNB established by the MNB under Article 162(2) of the MNB Act without  being subject to 
the  conflict  of  interest  rules  provided  for  in  Article  152(1)  to  (5)  of  the  MNB  Act,  including  any 
formal disclosure requirement. Hence, for those activities, the MNB officials involved, including the 
Governor,  are  fully  shielded  from  any  scrutiny.  Moreover,  Article  153(6)  of  the  MNB  Act  also 
provides for an explicit exemption to the rule of Article 156(1) of the MNB Act, which determines 
that members of the Monetary Council (including the Governor) may only perform other activities, 
which  are  compatible  with  their  central  bank  decision-making  duties.  Hence,  under  national  law 
such members may undertake activities in the MNB's foundations and business associations that 
are incompatible with their central bank decision-making duties. The provision conflicts with Article 
162(2) of the MNB Act, which provides that the MNB may only establish foundations and business 
associations  in  line  with  its  tasks  and  primary  objective  of  ensuring  price  stability.  Moreover, 
central  bank  decision-making  duties  must  always  be  performed  in  compliance  with  Article  130 
TFEU. The exemption therefore seems to imply that the latter principles of primary Union law may 
be disregarded by members of the Monetary Council when acting in the context of the foundations 
and  business  associations  under  MNB  ownership.  Therefore,  this  incompatibility  needs  to  be 
removed.  

In  addition,  Article  156(7)  read  in  conjunction  with  Article  152(1)  of  the  MNB  Act,  extends  the 
application of conflict of interests provisions to Monetary Council members to six months following 
termination of their employment relationship with the MNB. However, an exemption is granted as 
regards organisations  covered  by  acts  enumerated  in  Article  39  in  which  the  Hungarian  State  or 
the  MNB  has  a  majority  stake.  Such  an  exemption  could  create  situations  where  the  privileged 
position  of  Monetary  Council  members  could  give  them  an  unfair  advantage  in  obtaining 
nominations or posts in other organisations, putting them in a position of conflict of interest while 
still in employment at the MNB.   

Moreover,  Article  157  of  the  MNB  Act  provides  for  an  obligation  for  members  of  the  Monetary 
Council, including  the  Governor and the  Deputy  Governors, to  file  asset  declarations  in  the  same 
manner  as  Members  of  Parliament,  pursuant  to  the  provisions  of  Article  90  of  the  Act  XXXVI  of 
2012 on the National Assembly. According to Article  157(1) of the  MNB Act and Article 90(2) of 
the  Act  XXXVI  of  2012,  the  obligation  to  submit  an  asset  declaration  extends  to  close  family 
members  (spouse,  domestic  partner,  and  children).  Pursuant  to  Article  90(3)  of  the  Act  XXXVI  of 
2012,  members  of  the  Monetary  Council  who  fail  to  submit  an  asset  declaration  will  not  be 
allowed  to  exercise  their  functions  and  will  receive  no  remuneration  until  they  comply  with  the 
obligation. This provision allows for the temporary removal from office of, inter alia, the Governor, 
a  removal  that  seems  to  follow  automatically  if  the  failure  to  submit  an  asset  declaration  as 
required  by  the  above  provisions  is  established  by  the  Parliament.  To  fully  preserve  the 
requirement  of  central  bank  independence,  a  two-step  approach  could  be  considered:  first,  to 
officially  notify  the  members  of  the  Monetary  Council,  including  the  Governor  and  the  Deputy 
Governors,  of  the  failure  of  submission  and  its  possible  legal  consequences  to  allow  for  its 
correction  within  a  set,  short  and  reasonable  timeframe;  second,  to  impose  proportionate 
sanctions, which could include dismissal or temporary removal for office if the failure to submit an 
asset  declaration  constitutes  serious  misconduct  within  the  meaning  of  Article  14.2  of  the 
ESCB/ECB  Statute.  In  any  case,  the  law  should  clarify  that  the  sanctions  for  the  breach  of  the 
obligation  to  file  asset  declarations  do  not  constitute  extra  grounds  for  dismissal  (including 
temporary removal from office) of the members of the Monetary Council, including the Governor 
and the Deputy Governors, in addition to those contained in Article 14.2 of the ESCB/ECB Statute. 

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The Commission notes the provisions on restauration of capital of Article 166(3) of the MNB Act, 
which  aim  to  safeguard  the  financial  independence  of  the  central  bank.  This  implies  that  MNB 
should  always  be  sufficiently  capitalised  in  order  to  avoid  any  situations  which  may  negatively 
impact  the  central  bank’s  ability  to  perform  its  ESCB-related  tasks  but  also  its  national  tasks. 
However, the MNB Act provide for a wide margin of discretion of the State authorities to determine 
when the MNB’s equity would be restored up to the level of the MNB’s subscribed capital.  

3.1.3.  Prohibition of monetary financing and privileged access 

Pursuant to Article 36 of the MNB Act and subject to the prohibition of monetary financing set out 
under Article 146 of the MNB Act, the MNB can provide an emergency loan to credit institutions in 
the event of any circumstance arising in which the operation of a credit institution jeopardises the 
stability of the financial system. In order to comply with the prohibition of monetary financing of 
Article 123 TFEU, it should be clearly specified that the loan is granted against adequate collateral 
to ensure that the MNB would not suffer any loss in case of debtor's default. 

Pursuant  to  Article  37,  the  MNB  may  grant  loans  to  the  National  Deposit  Insurance  Fund  and 
Investor  Protection  Fund  in  emergency  cases,  subject  to  prohibition  of  monetary  financing  under 
Article  146  of  the  Act.  Though  the  Act  adequately  reflects  conditions  for  central  bank  financing 
provided to a deposit guarantee scheme, a specific requirement should be included to ensure that 
the loans granted to the National Deposit Insurance Fund are provided against adequate collateral 
(e.g. a claim on future cash contributions, government securities, etc.) to secure the repayment of 
the  loan.  Therefore,  Article  37  is  incompatible  with  the  prohibition  of  monetary  financing  as  laid 
down in Article 123 TFEU. 

Article  177(6)  of  the  MNB  Act  provides  for  state  compensation  to  the  MNB  of  all  expenses 
resulting from obligations, which exceed the assets the  MNB has taken over from the HFSA.  The 
law  does  not  contain  any  provisions  on  the  procedure  and  deadlines  on  how  the  state  shall 
reimburse  the  MNB  of  the  expenses.  Therefore,  the  reimbursement  under  Article  177(6)  of  the 
MNB  Act  is  not  accompanied  by  measures  that  would  fully  insulate  the  bank  from  all  financial 
obligations resulting from any activities and contractual relationships of the HFSA originating from 
prior to the transfer of tasks. In case of a  substantial time gap between the costs arising to the 
MNB  and  the  reimbursement  by  the  state  pursuant  to  Article  177(6)  of  the  MNB  Act,  the 
reimbursement would result in an ex-post financing scheme. Should the expenses incurred at the 
MNB  exceed  the  value  of  assets  taken  over  from  the  HFSA,  such  a  scenario  would  constitute  a 
breach of the prohibition of monetary financing laid down in Article 123 TFEU. In order to comply 
with  the  prohibition  of  monetary  financing,  Articles  176  and  183  of  the  MNB  Act  should  be 
amended in order to insulate the MNB by appropriate means from all financial obligations resulting 
from the HFSA's prior activities or legal relationships and obligations including those deriving from 
the automatic further employment of HFSA staff by the MNB. 

Article 162(3) and (4) of the MNB Act lay down the conditions of disclosure of data by a company 
related to the MNB. Furthermore, Article 162(5) provides for supervision of the State Audit Office 
of  the  operations  of  foundations  established  by  the  MNB.  Notwithstanding  the  limitations 
regarding access to  data of  MNB  companies,  it is noted that pursuant to the principle of sincere 
cooperation  (Article  4  TEU)  a  Member  State  is  required,  in  full  mutual  respect,  to  assist  the 
Commission  and  the  European  Central  Bank  in  carrying  out  tasks  which  flow  from  the  Treaties, 
such as providing the information necessary for monitoring the application of EU law. 

Pursuant  to  Article  162(2)  of  the  MNB  Act,  the  MNB  may  establish  business  associations  under 
majority  of  MNB  ownership,  or  foundations.  Article  162(2)  has  been  further  amended  in  2025 
stating that the MNB may not establish an asset management foundation and that a foundation 
established by MNB may not engage in investment or asset management activities as a business 
activity,  nor  may  it  conduct  payment  services.  However,  these  provisions  do  not  apply  to 
foundations  established  prior  to  its  entry  into  force.  In  order  to  dispel  any  concerns  from  the 
perspective  of  Article  123  TFEU,  the  MNB  Act  should  be  amended  by  providing  for  a  clear 
framework delimiting the operations of such foundations and the volumes or resources which the 
MNB could endow them with, enabling them to purchase large volumes of Hungarian government 

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Convergence Report 2026 - Technical annex 
Chapter 3 - Hungary 

securities.  Moreover,  the  exemption  provided  under  Article  153(6)  of  the  MNB  Act  to  the  rule  of 
Article 156(1) of the MNB Act which determines that members of the Monetary Council (including 
the  Governor)  may  only  perform  other  activities  which  are  compatible  with  their  central  bank 
decision-making  duties,  is  incompatible  with  Article  123  TFEU.  The  exemption  provided  for  in 
national  law  seems  to  imply  that  the  prohibition  of  monetary  financing  enshrined  in  Article  123 
TFEU  may  be  disregarded  by  members  of  the  Monetary  Council  (including  the  Governor)  when 
acting  in  the  context  of  the  foundations  and  business  associations  under  MNB  ownership.  This 
incompatibility needs to be removed.  

3.1.4.  Integration into the Eurosystem 

Objectives 

Article  3(2)  of  the  MNB  Act  determines  that,  without  prejudice  to  the  primary  objective  of  price 
stability,  the  MNB  shall  uphold  to  maintain  the  stability  of  the  financial  intermediary  system,  to 
increase its resilience, to ensure its sustainable contribution to economic  growth and  support the 
economic  policy  of  the  government.  The  objective  laid  down  in  Article  3(2)  of  the  MNB  Act  is 
reduced  to  supporting  the  economic  policy  in  Hungary.  The  provision  should  be  aligned  to  the 
secondary  objective  of  the  ESCB enshrined  in  Article  127(1)  TFEU  and  Article  2  of  the  ESCB/ECB 
Statute  in  order to  embrace  the  support  of  the  general  economic  policies in  the  entire  European 
Union rather than in Hungary only. 

Tasks 

The MNB Act contains a series of incompatibilities with regard to the following ESCB/ECB tasks: 

•  definition  of  monetary  policy  and  the  monetary  functions,  operations  and  instruments  of  the 

ESCB (Articles 1(2), 4(1), 9, 16 – 21, 159 and 171 of the MNB Act); 

•  conduct of  foreign exchange operations (Articles 1(2), 4(3), (4) and (12), 9 and 159(2) of the 
MNB Act) and the definition of foreign exchange policy (Articles 1(2), 4(4) and (12), 9, 22 of the 
MNB Act); 

•  competences  of  the  ECB  and  of  the  Council  for  banknotes  and  coins  (Article  K  of  the 
Fundamental Law and Articles 1(2), 4(2) and (12), 9, 12, 23 to 26 and 171(1) of the MNB Act). 

There are also some imperfections in the MNB Act regarding the following matters: 

•  non-accurate  reflection  of  the  principle  of  central  bank  independence  in  the  MNB  Act  (Article 

1(2) and (3) of the MNB Act);  

•  non-recognition of the role of the ECB in the functioning of the payment systems (Articles 1(2), 

4(5) and (12), 9, 13, 27-28, and 159(3), 171 (3) of the MNB Act);  

•  non-recognition of the role of the ECB and of the EU in the collection of statistics (Article 1(2), 

9, 30(1) and 171(1) of the MNB Act);  

•  non-recognition  of  the  role  of  the  ECB  in  the  field  of  international  cooperation  (Articles  1(2), 

Article 135(5) of the MNB Act)); 

•  absence of an obligation to comply with the Eurosystem's regime for the financial reporting of 
NCB operations (Article 12(4)(b) and Law C of 2000/95 (IX.21.) in conjunction with Government 
Decree 221/2000 (XII.19.), Article 147 of the MNB Act);  

•  non-recognition of the role of the ECB and the Council in the appointment of external auditors 

(Articles 6(1) (b), 15 and 144 of the MNB Act). 

3.1.5.  Assessment of compatibility 

As regards the independence of the MNB, the prohibition of monetary financing and the integration 
of  the  MNB  into  the  Eurosystem,  existing  Hungarian  legislation  is  not  fully  compatible  with  the 

42 

Convergence Report 2026 - Technical annex 
Chapter 3 - Hungary 

Treaties and the ESCB/ECB Statute pursuant to Article 131 TFEU for the reasons set out above. The 
Hungarian authorities should remedy the above-mentioned incompatibilities and imperfections.  

3.2.  PRICE STABILITY 

3.2.1.  Respect of reference value 

The  12-month  average  inflation  rate,  which  is  used  for  the  convergence  assessment,  was  4.3 
percentage  points  above  the  reference  value  at  the  time  of  the  last  convergence  assessment  of 
Hungary  in  2024.  In  May  2026, the  reference  value  was  2.7%, calculated  as  the  average  of  the 
12-month average inflation rates in Cyprus, France and Denmark plus 1.5 percentage points. The 
corresponding  inflation  rate  in  Hungary  was  3.3%,  i.e.  0.6  percentage  point  above  the  reference 
value. The 12-month average inflation rate is projected to decrease in 2026 and to fall back below 
the reference value in the second half of 2026. It is also projected to increase slightly above the 
reference value in the first half of 2027 but to be below the reference value by the end of 2027. 

3.2.2.  Recent inflation developments 

Annual  HICP  inflation  declined  from  an  average  of  around  16%  in  2022-23  to  3.7%  in  2024 
before  picking  up  again  to  4.4%  in  2025.  Food  inflation  was  a  key  driver  in  the  moderation  of 
overall inflation, declining from an average of over 21% in 2022-23 to 1.7% in 2024, before rising 
to  around  5.0%  in  2025  due  to  increasing  global  food  prices.  Simultaneously,  energy  inflation 
decreased significantly from an average of around 18% in 2022-23 to -2.0% in 2024 and -0.8% 
in 2025, reflecting lower gas and electricity prices in 2024 and reduced motor fuel prices in 2025. 
Nonetheless,  inflation  remained  above  the  euro  area  average  in  both  years.  This  inflation 
differential mostly reflected higher domestic inflation pressures in Hungary stemming from strong 
consumer  demand.  The  government  capped  the  retail  markup  of  certain  food  and  non-durable 
industrial  goods  from  March  2025.  The  inflation  differential  against  the  euro  area  narrowed 
significantly to 1.3 percentage points in 2024 but widened again at 2.3 percentage points in 2025. 
Headline  inflation  declined  at  the  beginning  of  2026,  bottoming  at  1.6%  in  February,  before 
increasing  gradually in the subsequent months. Inflation stood at  2.3% in May  2026, owing to a 
decline in food inflation, modest repricing of services and fuel price regulations which limited the 
impact of rising oil prices due to the conflict in the Middle East.  

43 

024681012141618202224Jan-20Jan-21Jan-22Jan-23Jan-24Jan-25Jan-26Jan-27HungaryReference valueGraph 3.1: Hungary -Inflation criterion(percent, 12-month moving average)Note: The dots at the right end of the chart show the projected reference value and 12-month average inflation rate of Hungary in December 2026 and December 2027. The reference values for 2020, 2022, 2024  and 2025 refer to the reference values calculated in the previous convergence reports.Source: Eurostat, Commission's Spring 2026 Economic Forecast.-20246810121416182022242628202020212022202320242025HungaryEuro areaGraph 3.2: Hungary -HICP inflation(y-o-y percentage change)Source: Eurostat. 
 
         
        
Convergence Report 2026 - Technical annex 
Chapter 3 - Hungary 

Annual  HICP  inflation  excluding  energy  and  food  fell  sharply  after  peaking  at  14%  in  2023, 
reaching 5.9% in 2024 and 5.3% in 2025, driven by declining production costs and a  moderation 
of wage growth. The inflation of non-energy industrial goods declined from around 11% in 2022 
and  2023  to  2.0%  in  2024  and  2025,  in  line  with  inflation  developments  in  the  euro  area.  By 
contrast,  services  inflation  remained  elevated,  at  8.6%  in  2024  and  7.5%  in  2025,  fuelled  by 
elevated  domestic  demand  and  high  wage  growth.  Furthermore,  service  providers  adjusted  their 
prices based on past inflation which, together with sector-specific tax hikes, further contributed to 
higher  services  prices  in  Hungary  over  this  period.  To  contain  services  inflation,  the  government 
negotiated limits to price increases with major telecommunication and financial services providers 
in  2025.  Additionally,  the  government  capped  fuel  prices  as  of  10  March  2026  to  address  the 
impact of the soaring oil prices in March.  

3.2.3.  Underlying factors and sustainability of inflation 

Macroeconomic policy mix and growth developments 

Hungary's economy grew by 0.7% in 2024. Growth was particularly hindered by a 8.6% decline in 
investment due to an unfavourable business environment, uncertainties around the outlook of the 
European car industry to which Hungary is closely tied and reductions in public investment. Exports 
fell by 0.5%, due to the weak performance of machinery and vehicle exports; however, net exports 
contributed  positively  to  growth  because  imports  declined  by  1.4%  in  2024  due  to  the  reduced 
domestic  demand,  particularly  investment.  Meanwhile,  consumption  rose  by  7.3%,  driven  by 
substantial  wage  increases  and  a  decrease  in  household  savings.  In  2025,  exports  continued  to 
face challenges from weak demand from trading partners, while investment remained subdued in 
this  unfavourable  environment.  Consequently,  the  economy  grew  by  0.5%  in  2025,  with 
consumption  as  the  sole  growth  driver.  According  to  the  Commission’s  Spring  2026  Economic 
Forecast,  GDP  growth  is  projected  to  recover  gradually  in  2026-2027,  driven  by  a  recovery  in 
exports  and  investment  while  consumption  is  expected  to  remain  elevated,  supported  by  fiscal 
policy measures. Growth is projected to accelerate to 1.8% in 2026 and 2.1% in 2027. 

Hungary’s  fiscal  stance  was  strongly  contractionary  in  2024  at  3.2%  of  GDP  but  turned 
expansionary  in  2025  at  -0.4%  of  GDP.  According  to  the  Commission’s  Spring  2026  Economic 
Forecast, the fiscal stance is projected to be expansionary at 1.7% of GDP in 2026. The no-policy-
change forecast for 2027 shows a broadly neutral stance at 0.1% of GDP. 

Monetary policy is conducted within an inflation targeting framework, with an inflation target set 
at 3% and a tolerance band of ±1 percentage point around this target. Since May 2024, the MNB 
has continued reducing the policy rate as inflation was receding during 2024. It implemented three 
more 25 basis point cuts, in June, July and September 2024, and the policy rate reached 6.5% with 
inflation declining fast. The MNB did not change its policy rate throughout 2025 despite inflation 
being  over  the  upper end  of  the  tolerance  band  during  most  of  2025.  The  slowdown  in  inflation 
since  its  peak  in  2023  resulted  in  positive  real  interest  rates  throughout  2024  and  2025,  which 
contributed to the subdued economic growth. The elevated geopolitical and economic uncertainty, 

44 

Table 3.1:weights  Hungary - Components of inflation(percentage change)1)in total   202020212022202320242025May-262025HICP3.45.215.317.03.74.43.31000Non-energy industrial goods1.23.211.310.82.02.01.7238Energy-3.212.418.718.2-2.0-0.8-1.3112Unprocessed food 10.22.123.420.51.75.02.064Processed food6.36.921.821.71.74.42.0212Services3.83.810.216.38.67.56.5374HICP excl. energy, food, alcohol and tobacco2.83.510.714.05.95.34.6612HICP at constant tax rates 3.34.715.316.23.34.23.11000Administered prices HICP0.40.912.111.61.85.04.61131) Measured by the arithmetic average of the latest 12-monthly indices relative to the arithmetic average of the 12-monthly indices in the previous period.Source: Eurostat, European Commission calculations. 
 
         
 
 
Convergence Report 2026 - Technical annex 
Chapter 3 - Hungary 

forecasts  indicating  that  inflation  would  be  close  to  target  in  2026  and  the  appreciating  forint 
were additional factors behind this decision.  

On February 2026, the MNB resumed its monetary easing by reducing its policy rate by 25 basis 
points to 6.25%. Low GDP growth, the strong decline of inflation in January 2026, the still positive 
real  interest  rates  and  favourable  inflation  forecasts  suggested  that  inflation  may  remain 
sustainably  within  the  target  band.  The  central  bank  continued  its  practice  of  holding  foreign 
exchange swap tenders (with one-day maturity) occasionally to provide euro liquidity to domestic 
banks. 

Wages and labour costs 

Employment  growth  continued  in  2024,  with  the  employment  rate  for  the  20-64  age  group 
reaching  81.1%  followed  by  a  stagnation  in  2025.  Employment  remained  elevated  in  2024-25, 
despite subdued economic  growth, as companies opted to hoard labour in a tight labour market. 
Nonetheless,  the  number  of  vacancies  decreased  from  previous  peaks.  The  unemployment  rate 
remained at around 4.5% throughout 2024-25 and the projected economic recovery is expected to 
sustain  labour  demand  and  keep  unemployment  low.  Challenges  to  Hungary’s  competitiveness 
persist,  in  particular  regarding  productivity  growth,  employment  support,  regional  and  societal 
disparities in the labour market, labour mobility and social dialogue. 

In  2024  and  2025,  labour  cost  growth  remained  substantial  but  it  slowed  down  somewhat 
compared  to  earlier  years,  reflecting  a  decline  in  inflation  and  more  moderate  minimum  wage 
hikes. Nonetheless, the minimum wage (in national currency) rose by a cumulative 25.4% in over 
those two years as part of a three-year agreement between the government, major trade unions 
and employers’ associations in the private sector to bring the minimum wage to 50% which is well 
above  the  8.3%  increase  in  the  consumer  price  level.  With  the  labour  market  remaining  tight, 
nominal  wage  growth  is  set  to  remain  elevated  in  2026,  driven  by  public  sector  wage  increases 
and a 11% minimum wage increase. Wage growth is expected to moderate in 2027 as the one-off 
public-sector wage hike fades out and inflation subsides. 

45 

Table 3.2:Hungary - Other inflation and cost indicators1)(annual percentage change)20202021202220232024202520262)20272)HICP inflationHungary3.45.215.317.03.74.43.23.1Euro area0.32.68.45.52.42.13.02.3Private consumption deflatorHungary2.85.915.413.85.75.74.33.2Euro area0.62.46.86.32.42.02.92.4Nominal compensation per employeeHungary4.17.917.015.112.69.09.35.9Euro area-0.44.44.65.34.53.93.23.2Labour productivityHungary-2.44.72.5-1.40.50.11.91.9Euro area-4.64.81.3-1.10.00.70.50.8Nominal unit labour costsHungary6.73.014.216.812.08.97.43.9Euro area4.5-0.43.36.54.63.22.72.3Imports of goods deflatorHungary2.711.931.8-5.82.0-0.2-1.0-1.4Euro area-3.99.722.0-4.1-1.8-1.03.70.51) The figures for the euro area refer to the euro area with 21 Member States. 2) Commission's Spring 2026 Economic Forecast. Source: Eurostat, Commission's Spring 2026 Economic Forecast. 
 
   
 
 
 
Convergence Report 2026 - Technical annex 
Chapter 3 - Hungary 

Labour productivity growth, measured in terms of 
GDP  per  worker,  remained  very  low  in  2024  and 
2025,  amidst  weak  GDP  growth.  Productivity 
growth is projected to improve in 2026-27 driven 
in  the  manufacturing  and 
by  the  rebound 
sectors  which  had  previously 
construction 
hoarding. 
labour 
significant 
experienced 
Nonetheless,  structural  barriers  such  as  weak 
product  market  competition,  skills  shortages  and 
low  digitalisation  continue  to  pose  barriers  to 
productivity  growth.  Unit  labour  cost  growth 
eased  to  12.0%  in  2024  and  to  8.9%  in  2025, 
compared  to  average  growth  of  15.5%  in  2022 
and  2023,  but  remained  elevated.  As  wage 
growth is projected to slow down and productivity 
is  set  to  recover,  unit  labour  costs  growth  is 
expected  to  ease  further  in  2026-27.  Nonetheless,  persistently  weak  productivity  growth  in 
combination  with  continued  strong  wage  growth  may  pose  risks  to  cost  competitiveness  unless 
accompanied by structural improvements in skills, innovation and product market functioning. 

External factors 

Due to the high degree of openness of the Hungarian economy, developments in import prices play 
an important role in domestic price formation. Import prices remained a key driver of inflation in 
2024-25,  reflecting  both  the  pass-through  effects  of  currency  depreciation,  particularly  in  2024, 
and rising global commodity prices, most notably in 2025. The forint’s nominal effective exchange 
rate (measured against a group of 36 trading partners) depreciated by 2.6% in 2024, followed by 
a marginal appreciation of 0.4% in 2025. The forint appreciated against the euro by 7% between 
January and May 2026.  

Administered prices and taxes 

The share of administered prices in the Hungarian HICP basket was 11.3% in 2025, slightly below 
the  euro  area  average  of  11.9%.  Administered  prices  rose  by  1.8%  in  2024  and  5.0%  in  2025, 
considerably lower than the average annual growth of 11.9% in 2022 and 2023. These increases 
in  2024-25  primarily  reflected  the  indexation  of  road  tolls,  parking  services,  and  rises  in 
administered  rental  prices.  Additionally,  a  decline  in  gas  and  electricity  demand  in  2024 
contributed to a decrease in administered energy prices, while increased energy demand in 2025 
raised  these  prices.  This  is  characteristic  of  Hungary’s  two-tier  energy  pricing  scheme  for 
households,  which  determines  energy  prices  based  on  consumption,  with  higher  consumption 
resulting  in  a  higher  average  price.  Administered  prices  reduced  headline  inflation  by  0.3 
percentage point in 2024 and had no impact on it in 2025.  

Changes  in  indirect  taxation  raised  headline  inflation  by  0.5  percentage  point  in  2024  due  to 
increased  excise  duty  on  motor  fuel.  In  2025,  the  excise  duties  on  fuel,  alcohol,  and  tobacco 
products were further increased, adding 0.3 percentage point to inflation. Excise duties on tobacco 
products and motor fuel are adjusted annually based on national year-over-year inflation for July 
in  the  preceding  year.  Consequently,  indirect  taxes  on  alcohol  and  tobacco  were  increased  in 
January 2026, but the excise duty increase on fuel was postponed to July 2026. 

Medium-term prospects 

The currency appreciation throughout 2025, along with the expected moderation of energy prices 
and somewhat lower wage growth, is set to moderate inflation in 2026 and 2027. According to the 
Commission’s  Spring  2026  Economic  Forecast,  inflation  is forecast  to  decrease  to  3.2% in  2026 
and to 3.1% in 2027. However, high labour cost growth and strong consumption growth are set to 
keep domestic price pressures elevated and slow disinflation in the coming quarters. Furthermore, 

46 

-404812162020202021202220232024202520262027Productivity (real GDP per person employed)Nominal compensation per employeeNominal unit labour costsHICP inflationGraph 3.3: Hungary -Inflation, productivity and wage trends(y-o-y % change)Source: Eurostat, Commission's Spring 2026 Economic Forecast.          
Convergence Report 2026 - Technical annex 
Chapter 3 - Hungary 

energy  prices  increased  due  to  the  conflict  in  the  Middle  East,  although  fuel  price  regulations 
introduced in March 2026 limited the impact of rising oil prices.   

The risks to the inflation outlook are balanced. On the one hand, expansionary fiscal policy, a tight 
labour market and high inflation expectations are driving domestic inflation developments.  On the 
other hand, currency appreciation is helping to moderate imported inflation, including the impact of 
rising energy prices due to the conflict in the Middle East.  

The price level of household  final consumption in Hungary stood at about  70% of the euro area 
average in 2024, closing 6% of the relative price gap since 2022. The lower aggregate price level 
relative to the euro area suggests that there is still scope for price level convergence in the long 
term, as GDP per capita in PPS (73% of the euro area average in 2025) increases towards the euro 
area average. 

Medium-term  inflation  prospects  will  depend  strongly  on  policies,  and  wage  and  productivity 
developments,  notably  in  the  non-traded  sector  and  on  the  success  with  anchoring  inflation 
expectations at the central bank’s 3% target. 

3.3.  PUBLIC FINANCES 

3.3.1.  Recent fiscal developments 

Hungary’s general government deficit has remained above the 3% of GDP Treaty reference value 
since 2020. It decreased to 5.1% in 2024 and 4.7% in 2025, from 7.0% in 2023.  

The revenue-to-GDP ratio fell to 42.2% in 2024, largely due to a decrease in EU transfers (which 
were related to lower spending on EU-financed projects and thus did not impact the government 
deficit).  The  ratio  then  rose  to  42.6%  in  2025  but  remains  below  pre-pandemic  levels.  Robust 
consumption  drove  VAT  revenue  growth,  despite  the  weak  macroeconomic  environment.  The 
extension  of  sectoral  taxes  on  companies  in  the  energy,  financial,  retail  and  pharmaceutical 
sectors, as well as a small increase in excise duties, helped offset the impact of the decline in the 
income tax share of GDP, due in particular to the phase-in of personal income tax exemptions for 
mothers and an increase in the family tax allowance. Strong wage increases led to an increase in 
social contributions as a share of GDP.   

The expenditure-to-GDP ratio fell significantly in 2024, from 49.7% to 47.3%, due to large cuts to 
public  investment  (in  nominal  terms  and  as  a  share  of  GDP)  and  a  reduction  of  some  current 
expenditure categories, including energy subsidies. These reductions were tempered by a rise in the 
compensation  of  employees  as  a  share  of  GDP,  reflecting  the  rapid  wage  growth  in  the  public 
sector. In 2025, the expenditure ratio remained at 47.3%, despite further increases in public wages 
and  other  operating  expenditures,  as  investment  and  interest  expenditure  declined.  Hungary’s 
elevated  interest  payments  dropped  from  4.9%  in  2024  to  3.8%  of  GDP  in  2025  due  to  lower 
coupons on inflation-linked bonds.  

On  4  November  2024,  Hungary  submitted  its  national  medium-term  fiscal-structural  plan  to  the 
Council and to the Commission. On 16 January 2025, the Commission recommended to the Council 
to  endorse  Hungary’s  national  medium-term  fiscal  structural  plan.  Based  on  the  plan’s  policy 
commitments and macroeconomic assumptions, the net expenditure path put forward in the plan 
is consistent with the requirements set out in Regulation (EU) 2024/1263. On 18 February 2025, 
the  Council  adopted  a  recommendation  endorsing  Hungary’s  national  medium-term  fiscal-
structural  plan.  The  plan  sets  out  a  fiscal  adjustment  path  over  four  years,  with  maximum  net 
expenditure growth of 4.3% in 2025, 4.0% in 2026, 3.9% in 2027 and 3.7% in 2028.  

The Council opened a deficit-based excessive deficit procedure (EDP) for Hungary in July 2024 as 
its government deficit exceeded the Treaty reference value of 3% of GDP. On 18 February 2025, 
the  Council  adopted  a  recommendation  with  a  view  to  bringing  an  end  to  the  situation  of  an 
excessive deficit. The recommended maximum net expenditure growth rates under the EDP were in 
line  with  those  set  out  in  Council  recommendation  endorsing  Hungary’s  national  medium-term 
fiscal-structural  plan.  These  equate  to  an  annual  adjustment  of  0.5%  of  GDP  to  the  structural 

47 

Convergence Report 2026 - Technical annex 
Chapter 3 - Hungary 

primary  balance.  The  EDP  correction  deadline  is  2026,  at  which  point  the  medium-term  fiscal-
structural plan envisaged a deficit of 2.5% of GDP.  

On  8  July  2025,  the  Council  activated  the  national  escape  clause  (NEC)  for  increases  in  defence 
spending for Hungary covering the period from 2025 to 2028. The NEC allows Hungary to deviate 
from, and exceed, the net expenditure path in force to increase defence expenditure as long as the 
deviation is within 1.5% of GDP, taking 2021 as a reference year.  

In  Spring  2026,  the  Commission  assessed  the  effective  action  taken  by  Hungary  to  address  the 
Excessive  Deficit  Procedure  recommendation  on  the  basis  of  the  Commission’s  Spring  2026 
Economic Forecast. Net expenditure grew by 8.1% in 2025 and 11.2% cumulatively over 2024 and 
2025.  The  net  expenditure  growth  in  2025  is  above  the  recommended  maximum  growth  rate, 
corresponding to a deviation of 1.5% of GDP in annual terms. When considering 2024 and 2025 
together, the cumulative growth rate of net expenditure is also above the recommended maximum 
growth  rate,  corresponding  to  a  deviation  of  0.8%  of  GDP  in  cumulative  terms.  However,  the 
deviation is within the flexibility of the national escape clause, taking into account the increase in 
defence spending. As a result, the EDP was held in abeyance for Hungary in spring 2026. 

The fiscal stance was expansionary in 2025 at -0.4% of GDP, driven by an increase in EU-funded 
expenditure,  net  nationally-financed  current  primary  expenditure  and  other  capital  expenditure. 
This more than offset the contraction in nationally-finance gross fixed capital formation.  

The  government  debt-to-GDP  ratio  rose  in  2024,  for  the  first  time  since  2020,  to  73.5%  before 
increasing again to 74.6% in 2025. The rise in 2025 was primarily due to the large primary deficit 
and elevated interest payments, alongside weak real GDP growth and a debt-increasing stock flow 
adjustment. 

3.3.2.  Medium-term prospects 

The  2026  budget  was  adopted  by  the  Hungarian  Parliament  on  17  June  2025.  It  targeted  a 
headline  deficit  of  3.7%  of  GDP  and  included  contingency  reserves  of  0.2%  of  GDP  to  cover 
potential slippages, based on projected GDP growth of 4.1% in 2026. 

The  budget  included  a  number  of  tax  measures  that  would  reduce  the  revenue-to-GDP  ratio  in 
2026.  In  particular,  the  personal  income  tax  exemption  for  mothers  was  extended  to  mothers 
under 40 with two children, while the family tax allowance for parents was increased. This will be 
partially offset by an extension of the windfall sectoral taxes that were due to expire in 2025 on 
companies in the financial, retail and energy sectors. Since the adoption of the 2026 budget, the 
tax on banks was further increased to compensate for additional expenditure measures that were 
also later introduced. 

On  the  expenditure  side,  the  2026  budget  foresaw  higher  compensation  for  public  employees, 
reflecting in particular the minimum wage increase, wage increases for teachers and a bonus of 6 
months’  wages  to  military  and  law  enforcement  employees.  It  included  an  increase  in  defence 
expenditure.  In  the  second  half  of  2025,  after  the  adoption  of  the  2026  budget,  Hungary 
introduced new housing support measures, supports for SMEs and a 14-month pension. 

For  2026,  the  Commission’s  2026  Spring  Economic  Forecast  projects  the  general  government 
deficit to rise to 6.2% of GDP, reflecting  inter alia the personal income tax reductions and public 
sector  wage  increases  and  bonuses.  The  general  government  debt  is  projected  to  increase  to 
75.1% of GDP in 2026, driven by the high primary deficit and elevated interest expenditure.  

48 

 
Convergence Report 2026 - Technical annex 
Chapter 3 - Hungary 

In  spring  2026,  the  Commission  assessed  Hungary’s  risk  of  compliance  with  the  recommended 
maximum  growth  of  net  expenditure  in  2026,  based  on  outturn  data  for  2024-2025  and  the 
Commission’s  Spring  2026  Economic  Forecast.  Net  expenditure  is  projected  to  grow  by  9.7%  in 
2026, above the recommended growth of 4.0%. The deviation above the recommended maximum 
is equivalent to an annual deviation of 2.3% of GDP and a cumulative deviation of 3.0% of GDP 
when  considering  2024,  2025  and  2026  together.  Taking  the  flexibility  for  higher  defence 
spending provided for by the NEC into account, the cumulative deviation reduces to 1.9% of GDP. 
Hungary  is  projected  to  be  at  risk  of  material  non-compliance  in  2026.  The  projected  risk  of 
material  non-compliance  in  2026  would  entail  a  strong  presumption  of  no  effective  action  and 
could require a stepping up of the EDP at a later stage. After the new government took office, on 1 
June  2026,  Hungary  informed  the  Commission  about  its  intention  to  submit  a  revised  national 
medium-term fiscal-structural plan. 

Based  on  the  Commission’s  estimates,  the  fiscal 
stance  is  projected  to  remain  expansionary  in 
2026, at -1.7% of GDP, driven by net nationally-
financed  current  expenditure.  The  contribution  of 
EU-financed  expenditure  and  net  nationally-
financed 
capital 
expenditure  is projected  to  be  broadly  neutral.  In 
2027, the fiscal stance is projected to be broadly 
neutral, on a no-policy-change basis. 

investment 

other 

and 

Debt  sustainability  risks  appear  high  over  the 
medium  run.  Government  debt  is  projected  to 
increase  from  around  75%  in  2025  to  around 
103%  of  GDP  in  2036.  This  projection  assumes 

49 

Table 3.3:Hungary - Budgetary developments and projections (as % of GDP unless indicated otherwise)Outturn and forecast 1)20202021202220232024202520261)20271)General government balance-7.5-7.1-6.2-7.0-5.1-4.7-6.2-5.8- Total revenue43.541.042.942.842.242.642.541.6- Total expenditure51.048.149.149.747.347.348.747.4   of which: - Interest expenditure2.32.22.84.74.93.83.93.7p.m.: Tax burden35.833.735.235.035.335.634.934.0Primary balance-5.2-4.9-3.4-2.3-0.3-0.9-2.3-2.1Fiscal stance 2)1.1-2.8-1.73.63.2-0.4-1.70.1Recommended growth in net expenditure (%)4.34.03.9Growth in net expenditure (%)8.19.73.7Government gross debt78.776.274.173.373.574.675.176.8p.m: Real GDP growth (%)-4.37.24.2-0.80.70.51.82.11) Commission’s Spring 2026 Economic Forecast. 2) The fiscal stance is based on the increase in net expenditure (including that financed by the EU budget) relative to medium-term     potential GDP growth.  A positive (negative) sign indicates a contractionary (expansionary) fiscal stance (in % of GDP). The fiscal      stance profile in 2020-2023 does not include the temporary impact of COVID-19 emergency measures.     stance profile in 2020-2023 does not include the temporary impact of COVID-19 emergency measures. Source: European Commission.-3-2-1012342024202520262027Expenditure financed by RRF grants and EU funds (e)Other capital expenditure (d)Nationally financed investment (c)Net nationally financed  primary current expenditure (b)Fiscal stance (f=a+e)Net nationally financed  primary expenditure (a=b+c+d)ExpansionaryContractionarySource: Commission's Spring 2026 Economic Forecast.Graph 3.4: Hungary -Fiscal stance and its components(percent of GDP) 
 
  
 
 
         
Convergence Report 2026 - Technical annex 
Chapter 3 - Hungary 

that, under a no-fiscal-policy-change assumption, the structural primary balance deteriorates from 
a surplus of 0.2% of GDP in 2025 to a deficit of 0.9% of GDP in 2026 and remains at that level 
(excluding changes in the cost of ageing) over the projection period (23). 

The sensitivity to possible macro-fiscal shocks also contributes to this assessment. In particular, if 
the  interest  rate-growth  differential  deteriorates  by  1.0  percentage  point  compared  with  the 
baseline, the projected debt ratio in 2036 would be around 8 percentage points higher than in the 
baseline. 

Several  additional  risk  factors  need  to  be  considered  in  the  assessment.  On  the  one  hand,  risk-
increasing  factors  relate  to  (i)  the  significant  proportion  of  foreign  currency  debt,  which  exposes 
the  government  to  exchange  rate  risk,  (ii)  the  high  exposure  of  domestic  banks  to  government 
debt, which poses a threat to both the financial sector and the government, (iii) the sizable amount 
of  redeemable  retail  government  bonds,  which  accounted  for  approximately  20%  of  central 
government  debt  at  the  end  of  2024  and  poses  a  refinancing  risk,  and  (iv)  the  high  level  of 
contingent liabilities arising from state guarantees, which poses additional fiscal risks, potentially 
straining  public  finances.  On  the  other  hand,  Hungary's  government  financing  benefits  from  a 
diversified  debt  portfolio,  which  relies  on  multiple  sources  including  bond  issuances  on 
international capital markets, a sizable retail bond programme, and the domestic financial sector.  

Despite  gradual  improvements,  Hungary’s  fiscal  framework has  not  fostered  transparency  and  a 
prudent fiscal stance. The continued practice of early budget adoption, with an exception in 2024, 
and frequent revisions of fiscal targets reduce policy predictability and accountability. In addition, 
the introduction of the ‘state of  danger’, in force since 2020 and repeatedly extended, has lifted 
the  requirement  to  publish  a  multiannual  budgetary  plan,  and  increased  the  discretion  in  the 
implementation  of  annual  budgets.  Establishing  a  realistic  and  stable  national  medium-term 
budgetary  framework  would  enhance  the  credibility  and  effectiveness  of  Hungary’s  fiscal  policy. 
Additionally, strengthening the role and independence of the Hungarian Fiscal Council by enhancing 
its  own  operational  capacities  could  help  improve  fiscal  discipline  and  transparency.  The 
requirements for the national medium-term budgetary framework and remit of the Fiscal Council 
of Hungary are affected by the 2024 amendments to the Directive on requirements for budgetary 
frameworks  of  the  Member  States  (2011/85/EU).  The  Directive  was  revised  as  part  of  the 
reformed EU Economic Governance Framework, which places the medium-term perspective at the 
core  of  fiscal  planning.  Amendments  strengthen  national  medium-term  budgetary  frameworks, 
extend  the  independence  safeguards  for  independent  fiscal  institutions  to  all  EU  Member  States 
and assign some compulsory tasks to these institutions. 

3.4.  EXCHANGE RATE STABILITY 

The  Hungarian  forint  does  not  participate  in  ERM  II.  The  MNB  operates its  monetary  policy  in  an 
inflation targeting regime with the inflation target set at 3 percent with a tolerance band of +/-1 
percentage point. Since 26 February 2008, the exchange rate band was abolished and a floating 
exchange  rate  regime  was  adopted  that,  however,  allows  foreign  exchange  interventions  by  the 
MNB. 

In 2024, the  HUF/EUR exchange rate continued the  depreciation path that started after the June 
2023  high  of  371  HUF/EUR.  The  forint  fell  from 382  HUF/EUR  in  January  2024  to  a  low  of  412 
HUF/EUR in December 2024. The depreciation of the forint reflected general uncertainty related to 
the  war  in  Ukraine,  the  aggressive  policy  rate  cuts  until  mid-2024  and  the  higher  inflation  in 
Hungary  relative  to  the  euro  area.  However,  between  September  2024  and  January  2026  MNB 
kept the policy rate constant, while ECB continued reducing its policy rates until June 2025. At the 
same time, the abrupt fall of HICP inflation from July 2023 to July 2024 has resulted in the policy 

(23)  This is in line with the no-fiscal-policy-change assumption as from 2027 and implies that the adjustment that Hungary 
commits  to  in  its  medium-term  plan  beyond  2026  is  not  taken  into  account  in  the  projection.  For  details  on  the 
methodology  see  European  Commission  (2026),  Debt  Sustainability  Monitor  2025,  Institutional  Paper  332,  February 
2026. 

50 

 
Convergence Report 2026 - Technical annex 
Chapter 3 - Hungary 

rate being higher than inflation since early 2024. This positive real interest rate, that reached as 
high  as  6%  in  mid-2024,  and  a  high  and  rising  interest  rate  differential  with  euro  area, are  the 
main  drivers  behind  forint’s  appreciation  to  around  385  HUF/EUR  by  December  2025.  The 
appreciation of the forint continued in the first months of 2026 due to  the slowdown in inflation, 
with  a  brief  reversal  in  March  due  to  the  Middle  East  conflict.  Following  the  results  of  April’s 
national elections, the forint appreciated once again in April and May, averaging 358  HUF/EUR in 
May. 

International reserves of the central bank that had already reached EUR 41.4 billion end-2023 rose 
to 44.6 billion by the end of 2024. The positive interest rate differential vis-à-vis the euro caused 
reserves  to  increase  faster  in  2025  and  reach  EUR  50.2  billion  by  end  2025,  which  was  around 
23% of GDP. International reserves further increased to EUR 61.1 billion in May 2026.  

Short-term interest rate differentials measured by the 3-month interbank interest rate spread vis-
à-vis the euro area started rising in fall 2024, after their minimum of 299 basis points in August 
2024. The increase reflected the divergent  monetary policy stances between  ECB, which lowered 
rates,  and  MNB,  that  kept  them  constant.  During  2025,  the  interest  rate  differential  continued 
rising and reached a peak level of 452 basis points in June 2025. It remained close to this level 
thereafter,  as both  central  banks  kept  their  policy  rates  unchanged.  The  cut  of  the  policy  rate  in 
February  resulted  in  an  almost  one-to-one  decline  in  the  interest  rate  differential  relative  to  the 
January level, and the results of the elections in April caused it to shrink even further. The spread 
stood at around 390 basis points in May 2026. 

3.5.  LONG-TERM INTEREST RATES 

The  long-term  interest  rate  in  Hungary  used  for  the  convergence  assessment  reflects  the 
secondary market yields on a single benchmark bond with a residual maturity of about 10 years.   

The Hungarian 12-month moving average long-term interest rate relevant for the assessment of 
the Treaty criterion was 1.3  percentage points above the reference  value at the time of the last 
convergence assessment in May 2024. In May 2026, the latest month for which data are available, 
the  reference  value,  given  by  the  average  of  long-term  interest  rates  in  Cyprus,  France  and 
Denmark, plus 2 percentage points, stood at 5.1%. In that month, the 12-month moving average of 
the  yield  on  the  Hungarian  benchmark  bond  stood  at  6.7%,  i.e.  1.6  percentage  points  above  the 
reference value. 

The long-term interest in Hungary has been fluctuating inside an 80 basis points band, reflecting 
the  constant  monetary  policy  rate  and  moderate  inflation  changes.  It  bottomed  at  6.2%  in 
September 2024 but then started rising slightly on the back of increasing inflation. During 2025 it 
remained broadly stable and reached 6.9% on December 2025. The policy rate cut in February and 
the sharp decline in inflation in early 2026 caused Hungary’s long-term interest rate to decrease. 
However, heightened risks due to the war in the Middle East temporarily raised it to 7.1% in March, 

51 

310330350370390410430202020212022202320242025Graph 3.5: Hungary -HUF/EUR exchange rate(monthly averages)Source: ECB.0100200300400500600700800900100011001200130014001500202020212022202320242025Graph 3.6: Hungary -3-M Bubor spread to 3-M Euribor(basis points, monthly values)Source: National Bank of Hungary, Eurostat and Refinitiv Workspace. 
 
     
         
Convergence Report 2026 - Technical annex 
Chapter 3 - Hungary 

the highest level since 2023. The results of April’s elections caused the long-term interest rate to 
return to a declining path, reaching 5.7% in May 2026.  

The long-term interest rate spread vis-à-vis the German benchmark bond remained very close to 
the  level  of  the  previous  report  (427  basis  points  in  May  2024),  despite  the  fact  that  ECB  has 
lowered policy rates by 1.50% since September 2024, when the MNB last changed its rate. It was 
at  426  basis  points  in  December  2024  and  at  409  basis  points  in  December  2025.  The  broad 
stability  of  the  long-term  spread,  despite  an  increase  in  the  short-term  spread,  reflected  the 
stronger decrease in inflation between 2022-2023 and 2024-2025 relative to the euro area and 
the market assessment of fiscal risks, against the background of substantial fiscal deficits in 2024 
and 2025 but a stable debt-to-GDP ratio. The spread narrowed in January-February and, following 
a sharp rise to 422 basis points in March, narrowed again in the subsequent two months, reaching 
260 basis points in May. 

3.6. 

 ADDITIONAL FACTORS 

The  Treaty  (Article  140  TFEU)  calls  for  an  examination  of  other  factors  relevant  to  economic 
integration and convergence  to be taken into account in the assessment. The assessment of the 
additional factors  – including balance of payments  developments, as well as product, labour and 
financial  market  integration  –  gives  an  important  indication  of  a  Member  State's  ability  to 
integrate into the euro area without difficulties.   

In November 2025, the Commission published its 15th Alert Mechanism Report (AMR 2026) under 
the  Macroeconomic  Imbalance  Procedure  (MIP  -  see  also  Box  1.6),  which  concluded  that  an  In-
Depth  Review  was  warranted  for  Hungary.  In  May  2026,  the  Commission  published  an  In-Depth 
Review for Hungary. Taking into account the assessment in the In-Depth Review, the Commission, 
in  its  Communication  ‘European  Semester  –  2026  Spring  Package (24),  considers  that  Hungary 
continues  to  experience  macroeconomic  imbalances.  The  2026  In-Depth  Review  found  that 
Hungary continues to face vulnerabilities primarily related to high government debt and elevated 
government financing needs, competitiveness, and house prices. Public debt increased in 2025 as a 
result of continued high deficits and debt-servicing costs. Meanwhile, rapid wage growth and the 
planned  minimum  wage  hike  in  2027  are  expected  to  continue  exerting  pressure  on  unit  labour 
costs  and  competitiveness  and  substantial  energy  imports  pose  risks  to  competitiveness  and 
external balances. House price growth accelerated further in 2025 driven by strong demand, which 
reflected  accommodative  financial  conditions  as well  as extensive  demand-supporting  measures. 
Government  policies,  in  particular  the  expansionary  fiscal  policy,  have  compounded  the 
vulnerabilities reviewed above.  

Hungary  submitted  a  replacement  recovery  and  resilience  plan  (RRP)  on  9  June.  It  includes 
measures  to  address  a  series  of  structural  challenges,  in  synergy  with  other  EU  funds,  including 

(24)  COM(2026) 200 final, 3.6.2026. 

52 

0246810Jan-20Jan-21Jan-22Jan-23Jan-24Jan-25Jan-26HungaryReference valueGraph 3.7: Hungary -Long-term interest rate criterion(percent, 12-month moving average)Source: European Commission.-2024681012202020212022202320242025HungaryGermanyGraph 3.8: Hungary -Long-term interest rates(percent, monthly values)Source: Eurostat. 
 
 
       
       
Convergence Report 2026 - Technical annex 
Chapter 3 - Hungary 

cohesion policy funds, to boost its  competitiveness and stimulate sustainable growth  and reduce 
the  country’s  territorial  and  social  disparities.  The  RRF  funding  provides  Hungary  with  EUR  10 
billion over the 2021-2026 period. Key reforms in Hungary’s RRP include those in the areas of Rule 
of Law (e.g. the judicial system, anti-corruption, public procurement), sustainable transport, energy, 
water management and circular economy, taxation and the fiscal framework.  

In  addition,  cohesion  policy  provides  Hungary  with  EUR  23.7  billion  for  the  2021-2027  period. 
Cohesion policy financing aims to further support Hungary’s competitiveness, including innovation 
and  the  uptake  of  advanced  technologies,  green  transition,  and  upward  social  convergence, 
including by addressing  poverty and developing education systems and  skills. While Hungary has 
made  progress  in  implementing  cohesion  policy,  challenges  remain  and  significant  social  and 
regional disparities persist. 

3.6.1.  Developments in the balance of payments 

Hungary’s  current  account  surplus  stood  at  1.8%  of  GDP  in  2024.  The  trade  balance  improved 
from 4.1% in 2023 to 4.5% in 2024, on the back of a terms of trade improvement and declining 
imports  due  to  a  fall  in  investment.  The  deficit  of  the  primary  and  secondary  income  account 
declined from 4.2% of GDP to 2.6% of GDP, particularly due to a decline in foreign firms’ profits. At 
the same time, the capital account balance, which captures capital transfers from the EU, declined 
from 1.2% of GDP to 0.4% of GDP in 2024, due to lower EU transfer inflows. 

In 2025, the current account surplus slightly decreased to 1.7% of GDP. The trade balance surplus 
remained  flat  at  4.5%  of  GDP.  The  balance  of  goods  decreased  slightly,  reflecting  a  fall  in 
manufactured  goods exports,  but  it  was  offset  by  the  increase  in  the  balance  of  services,  which 
reflected a decline in  business  services and tourism imports. At the same time the deficit of the 
primary  and  secondary  income  account  increased  from  2.6%  of  GDP  to  2.8%  of  GDP,  while  the 
surplus of the capital account increased slightly to 0.5% of GDP. 

53 

Table 3.4:Hungary - Balance of payments(percentage of GDP)202020212022202320242025Current account-1.1-4.4-9.00.01.81.7of which: Balance of trade in goods-1.3-3.3-9.4-0.6-0.5-0.8               Balance of trade in services3.02.94.14.75.05.3               Primary income balance -2.2-3.0-2.9-3.1-2.0-2.4               Secondary income balance-0.5-1.0-0.8-1.1-0.6-0.4Capital account2.02.41.71.20.40.5External balance 1)0.9-2.0-7.31.22.22.2Financial account-1.1-4.0-9.00.10.7-0.4of which: Direct investment-1.9-2.2-2.6-0.7-6.54.0               Portfolio investment-1.90.6-2.5-4.30.6-2.1               Other investment 2)-1.7-4.7-4.63.76.5-3.7               Change in reserves4.52.30.71.30.01.4Financial account without reserves-5.5-6.3-9.7-1.30.7-1.8Errors and omissions-2.0-2.0-1.7-1.1-1.5-2.6Gross capital formation27.530.934.326.223.722.2Gross saving26.526.625.326.225.523.9Net international investment position-50.5-49.7-44.7-38.9-33.3-32.41) The combined current and capital account.2) Including financial derivatives.Sources: Eurostat, European Commission calculations, the Magyar Nemzeti Bank. 
 
   
 
 
Convergence Report 2026 - Technical annex 
Chapter 3 - Hungary 

The financial account vis-à-vis rest of the world recorded a surplus of 0.7% in 2024 compared to 
0.1% in 2023. The increase in the surplus reflected a decline in portfolio investment inflows, and 
an  increase  in  other  investments  abroad  in  particular  currency  and  deposits,  amid  a  significant 
increase in net FDI liabilities. The financial account decreased to -0.4% of GDP in 2025, driven by  
other investment inflows while international reserves increased. 

According  to  the  Commission’s  Spring  2026 
Economic Forecast, the current account surplus is 
expected  to  turn  into  a  deficit  of  0.2%  in  2026 
owing  to  a  deterioration  of  the  terms  of  trade, 
which lowers the trade balance. Then in 2027, the 
current account is set to return to a slight surplus 
due  to  the  increase  in  exports,  supported  by  a 
recovery of goods exports thanks to the launch of 
assembly facilities in the automotive industry and 
the expected recovery of external demand.  

Price  and  cost  competitiveness  showed  a  mixed 
picture in 2024 and in 2025. The growth of ULCs 
was higher in Hungary than in its trading partners 
rate 
in  both  years,  while 
depreciated  in  2024  and  appreciated  slightly  in  2025.  The  ULC-based  real  exchange  rate  (REER) 
appreciated by 1.7% and 5.2% in 2024 and 2025 respectively. Inflation in Hungary was similar to 
that  of  trading  partners,  consequently,  the  HICP-based  REER  depreciated  in  2024  by  2.3%  and 
appreciated  by  1.6%  in  2025.  At  the  same  time,  Hungary’s  export  market  share  (measured  at 
current prices) decreased in 2024. 

the  exchange 

As  the  budget  deficit  remained  persistently  high  in  2024-2025,  the  external  borrowing  of  the 
government  sector  also  remained  elevated,  leading  to  debt-generating  portfolio  investment 
inflows,  and  rising  gross  external  debt.  Meanwhile,  direct  investments  continued  to  register  net 
inflows in 2024-2025. Overall, the net international investment position was negative at -32% of 
GDP at the end of 2025, an improvement from the -39% registered in 2023.  

3.6.2.  Market integration 

Hungary’s economy is highly integrated with the euro area through trade and investment linkages. 
The  economy  is strongly  embedded  into  continental  and  global  value  chains.  Nevertheless, trade 
openness (see Table 3.5 for a definition) has declined in 2023 to around 91% relative to the 2022 
peak (105%) and it fell further to around 85% in 2024 and to 81% in 2025. Flows with the euro 
area dominate trade, accounting for almost 46% of the total trade in goods and services in 2025; 
however, trade with euro area has declined after its peak in 2022. Hungary’s main euro area goods 
trading partners in 2024 were Germany, Slovakia, Austria and Netherlands. Outside the euro area, 
the main trading partners were Poland, Czechia, China and Romania. 

54 

758595105115125135202020212022202320242025Graph 3.9: Hungary -Effective exchange ratesNEERREER, HICP-deflatedREER, ULC-deflated(vs 36 trading partners; monthly averages;index numbers, 2020 = 100)Source: European Commission.      
Convergence Report 2026 - Technical annex 
Chapter 3 - Hungary 

The stock of FDI in  Hungary  amounted to about 55% of  GDP in 2024 (excluding special purpose 
entities,  ‘SPEs’  (25)),  with  FDI  mainly  originating  in  Germany,  the  Netherlands  and  Austria. 
Manufacturing and services account for 47% and 46% of inward FDI, respectively, suggesting that 
FDI plays an important role in enhancing Hungary’s export capacity and contributes significantly to 
economic integration with the euro area. 

the  fact 

Concerning  the  business  environment,  Hungary 
performs  in  general  worse  than  many  euro  area 
Member States in international rankings. In 2025, 
Hungary  ranked  48th  out  of  69  countries  in  the 
IMD  World  Competitiveness  Ranking  (26).  This  is 
despite 
that  certain  features  of 
Hungary’s  business  environment,  such  as  the 
lowest  corporate  income  tax  in  the  EU  (9%)  and 
generous  state  subsidies  create  an  attractive 
location  for  investments.    According  to  the  2026 
Country  Report,  businesses  continue  to  face  a 
highly  volatile  and  unpredictable 
regulatory 
environment. This includes frequent amendments, the extensive use of emergency measures and 
limited preparation time for economically significant changes. This remains a structural challenge, 
as the pace and manner of regulatory change have not stabilised and continue to affect long-term 
business  planning.  Moreover,  competition  is  restricted  in  several  service  and  product  markets. 
Several services are entrusted to state-owned or private firms which operate without competition. 
Such  services  include  textbook  publishing,  waste  management,  mobile  payments,  the  cash-in-
transit  market,  tobacco  wholesale  and  retail  trade,  gambling,  motorway  construction  and,  from 
2025,  cybersecurity  audits  and  certified  translation  services.  Concerns  remain  about  the  anti-
corruption  framework  and  the  quality  of  lawmaking,  which  have  an  additional  bearing  on  the 
business environment. 

According to the World Bank’s 2024 Worldwide Governance Indicators, Hungary ranks the lowest in 
the EU in terms of voice and accountability (27), the second lowest in terms of rule of law and the 

(25)  The  Hungarian  statistics  introduced  the  notion  of  special  purpose  enterprise  (SPE)  for  those  passive  financial 
intermediaries that  have  financial  relations  only  with  non-residents, and  allocated them  to the  financial corporations 
sector  as  private  financial  intermediaries  /  captive  financial  institutions  (S.127).  They  are  typically  related  to  tax 
optimization  by  holdings.  For  more  details,  see:    https://statisztika.mnb.hu/sw/static/file/pszlakonyv-en.pdf  p.  33.  Data 
for this sector are available at https://statisztika.mnb.hu/timeseries/evespszisalko_en.xlsx. 

(26)  https://www.imd.org/centers/wcc/world-competitiveness-center/rankings/world-competitiveness-ranking/rankings/wcr-

rankings/#_tab_List 

(27)  According  to the  World  Bank’s  methodology,  ‘voice  and  accountability’ captures  perceptions  of  the  extent  to  which  a 
country's citizens are able to participate in selecting their government, as well as freedom of expression, freedom of 
association, and a free media. See https://www.worldbank.org/content/dam/sites/govindicators/doc/va.pdf.  

55 

Table 3.5:Hungary - Market integration202020212022202320242025Trade openness 1) (%)86.990.5105.290.585.181.1Trade with euro area in goods & services 2)+3) (%)51.053.160.051.948.546.1IMD World Competitiveness Ranking 4)474239465448Internal Market Transposition Deficit 5) (%)1.00.71.50.20.51.1Real house price index 6)154.1169.5181.1169.2179.6200.7 1) (Imports + Exports of goods and services / (2 x GDP at current market prices)) x 100 (Foreign Trade Statistics, Balance of Payments). 2) (Imports + Exports of goods with EA-21 / (2 x GDP at current market prices)) x 100 (Foreign Trade Statistics). 3) Trade in services with EA-21 (average credit and debit in % of GDP at current prices) (Balance of Payments). 4) International Institute for Management Development (IMD). 5) Percentage of internal market directives not yet communicated as having been transposed, relative to the total. 6) Deflated house price index (2015=100) (Eurostat). Sources: Eurostat, World Bank, International Institute for Management Development, European Commission calculations.-0.60.00.61.2Voice andaccountabilityPolitical stability andabsence ofviolence/terrorismGovernmenteffectivenessRegulatory qualityRule of lawControl of corruptionHungaryEuro area average five lowestEuro area averageGraph 3.10: Hungary -World Bank's 2024 Worldwide Governance IndicatorsNote: Estimate of governance ranges from -2.5 (weak) to 2.5 (strong). Source: World Bank. 
 
          
 
 
 
   
Convergence Report 2026 - Technical annex 
Chapter 3 - Hungary 

third  lowest  in  regulatory  quality  and control  of  corruption  (28).  It  also  ranks  lower  than  the  euro 
area  average  in  terms  of  government  effectiveness.  According  to  the  2026  Country  Report, 
Hungary’s  processes  for  developing  and  evaluating  legislation  remain  below  the  EU  average. 
Corruption continues to be increasingly perceived as an obstacle to businesses (50% versus an EU 
average of 35%), and the perception persists that the only way to succeed in business is to have 
good  political  connections  (78%  versus  an  EU  average  of  51%).  Businesses’  views  on  corruption 
risks  in  public  procurement  are  above  the  EU  average.  Few  steps  were  taken  to  improve  the 
prevention  and  detection  of  corruption.  Hungary  faces  challenges  in  terms  of  enforcement  and 
establishing  a  track  record  for corruption  cases.  Overall,  the  justice  system continues to  perform 
efficiently.  In  terms  of  digitalisation,  Hungary  performs  very  well  (29).  Hungary’s  transposition 
deficit  of  EU  Directives  was  0.9%,  below  the  EU  average  (1.7%)  in  May  2026.  Nonetheless,  the 
conformity  deficit  was  4.0%,  the  highest  in  the  EU  and  above  the  EU  average  of  1.5%,  showing 
that a relatively high share of EU directives were incorrectly transposed into national legislation. 

Transposition  of  the  4th  and  the  5th  Anti-Money  Laundering  Directive  by  Hungary  is  now 
considered  complete.  Concerning  conformity,  the  Commission  after  its  assessment  came  to  the 
conclusion  that  parts  of  the  5th  Anti–Money  Laundering  Directive  had  not  been  transposed  in  a 
conform manner and, in that regard, an infringement procedure is still pending. 

Hungary’s  progress  in  the  anti-money  laundering  and  countering  the  financing  of  terrorism  area 
has  led  to  significant  improvements,  but  key  deficiencies  remain  in  risk  assessments,  outreach, 
sanctions, and scope of regulations. In its 6th Enhanced Follow-up Report & Technical Compliance 
Re-Rating,  dated  May  2024,  Moneyval  highlighted deficiencies  related  to  non-profit  organisation 
(NPO) oversight and virtual asset service providers (VASPs), which require further reforms and risk-
based measures.    

The  labour  market  remains  tight,  nonetheless,  youth  unemployment  has  increased  from  an 
average  of  11.7%  in  2022-23  to  15.2%  in  2024,  before  moderating  to  13.9%  in  2025.  Low-
educated  people,  Roma  and  persons  with  disabilities  continue  to  face  barriers  to  accessing  and 
staying  in  the  labour  market.  While  Hungary  performs  relatively  well  on  most  dimensions  of  job 
quality, the gender pay gap is one of the highest in the EU, low-skilled workers experience a high 
in-work poverty rate, and the duration of unemployment benefits  – three months – is inadequate 
to support unemployed people to find relevant work, as the average job-seeking period exceeded 
12  months in 2024 and 2025. Persisting labour  market  participation gaps and barriers affecting 
vulnerable groups weaken labour supply, exacerbate shortages and constrain Hungary’s medium-
term growth and convergence potential. 

(28)  A Member State is considered to have a ‘low’ (‘high') ranking compared with the average five euro area Member States 
with  the  lowest  scores  for  each  indicator  if its  score  is at  least  0.3  percentage  point  lower  (higher)  than  that  of this 
group of five euro area Member States. 

(29)  European Commission (2026), 2026 Country Report on Hungary, pp. 15, 58, 70-74. See also Annual Rule of Law Report, 

country chapter on Hungary. 

56 

 
 
Convergence Report 2026 - Technical annex 
Chapter 3 - Hungary 

The  financial  sector  in  Hungary  is  smaller  and  less  developed  than  in  the  euro  area.  Assets 
managed by the financial sector amounted to  298% of GDP in 2024 and to 172% of GDP when 
excluding  special  purpose  entities  (SPEs),  which  perform  no  financial  intermediation  in  the 
domestic economy. This is much less than in the euro area (707% of GDP) and comparable to the 
euro  area  Member  States  with  the  least  developed  financial  sectors.  At  the  same  time,  the 
financial sector has contracted faster than in the euro area since 2020, even when excluding SPEs. 
The  structure  of  the  financial  sector  is  different  from  that  of  the  euro  area,  where  the  banking 
sector is the largest sub-sector in the financial sector. The share of other financial intermediaries, 
which include SPEs, has declined substantially to 137% of GDP in 2024 and despite still being the 
biggest sector in Hungary, it is now much smaller than that in the euro area. In Hungary, the share 
of the banking sector in the total assets managed by the financial sector increased from 25% in 
2020 to 31% in 2024, but remains lower than the euro area average of 39%. The share of other 
financial intermediaries, which include SPEs, decreased from 59% to 46% (30)); both developments 
reversed  previous  trends.  However,  when  excluding  other  financial  intermediaries,  the  banking 
sector represents a large and stable share of the financial sector, with 62% of total assets in 2020 
and 58% in 2024. With this correction, the financial system can be assessed as more bank-based 
than  in  the  euro  area.  The  weight  of  the  central  bank  is  also  higher than  in  the  euro  area  when 
excluding SPEs (20% of total assets in 2024). Insurance companies and pension funds are clearly 
underdeveloped compared  with the euro area and with its five Member States with the smallest 
financial sectors (3% of the total assets of the financial sector). 

(30)  As indicated above, this likely reflects the large presence of foreign holdings in Hungary for tax optimisation purposes. 

57 

Table 3.6:Hungary - Allocation of assets by financial sub-sectorRatio to GDP (%)HUEAEA 5 smallest202020242020202420202024Financial corporations (total)426298806707199180Central bank413377516144Monetary financial institutions108943082759393Other financial intermediaries2521371951772015Non-MMF investment funds1)142612512546Insurance co. and Pension Funds119102802223Share of total (%)HUEAEA 5 smallest202020242020202420202024Central bank10111073024Monetary financial institutions253138394752Other financial intermediaries59462425108Non-MMF investment funds39151823Insurance co. and Pension Funds33131111131) MMF stands for money market funds.Source: Eurostat. 
 
  
 
 
 
Convergence Report 2026 - Technical annex 
Chapter 3 - Hungary 

As to the financing of the economy, outstanding liabilities declined to  502% of GDP in 2024 (vs. 
722% of GDP in the euro area). The structure of the financial sector is reflected in the financing of 
the economy: with 30% of total liabilities in 2024 (vs. 11% in the euro area), other equity is a main 
source  of  funding  due  to  the  presence  of  foreign  holdings  and  SPEs (31),  even  though  not  the 
biggest anymore. Loans, a large part of which is also provided by SPEs, have become the dominant 
source  of  funding  (34%  of  total  liabilities,  slightly  higher than  the  euro  area  average).  Debt  and 
equity markets are smaller than in the euro area and market financing (debt securities and listed 
shares) is relatively underdeveloped. Listed equity and private-sector debt markets represented 8% 
of total liabilities respectively (38% of GDP). This compares to 19% of total liabilities in the euro 
area  (73%  of  GDP  for  private-sector  debt  and  64%  of  GDP  for  listed  stocks).  Hungary  is  still 
broadly comparable to the five euro area Member States with the smallest financial needs. 

(31)  The most important impact of SPEs on liabilities in 2024 concerned other equity (SPEs were responsible for 43% of all 

other equity) and loans (SPEs were responsible for 30% of all loans). 

58 

Table 3.7:Hungary - Financing of the economy1)Ratio to GDP (%)HUEAEA 5 smallest202020242020202420202024Liabilities (total)638502813722325305Loans19017025121510392Non-financial co. debt securities34151232Financial co. debt securities716686135Government debt securities756494724943Listed shares17187164812Unlisted shares54421961876554Other equity25715182765864Trade credits and advances353636363633Share of total (%)HUEAEA 5 smallest202020242020202420202024Loans303431303230Non-financial co. debt securities012211Financial co. debt securities138812Government debt securities121312101514Listed shares349924Unlisted shares9824262019Other equity403010111720Trade credits and advances674510111) The table focuses on the financing needs of a country and how these are met by the financial system. The table is constructed    from the liabilities of all economic sectors, but only considers loans, debt securities, equity and trade credits. The sum of liabilities    in the table only reflects the total for the liabilities considered.Source: Eurostat. 
 
  
 
 
 
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The  Hungarian  banking  sector  is  well-integrated 
into the euro area financial sector, posting a level 
of foreign ownership that remains well above the 
one of the euro area. The share of foreign-owned 
institutions in total bank assets fell from 42% in 
2020  to  35%  in  2024,  with  the  corresponding 
figure  for  the  euro  area  being  at  around  18%. 
Bank  concentration,  as  measured  by  the  market 
share of the five largest credit institutions in total 
assets,  increased  from  50%  in  2020  to  59%  in 
2024,  a  somewhat  higher  value  than  the  euro 
area average (50% in 2024).  

59 

010203040506070HU, 2020HU, 2024EA, 2020EA, 2024Concentration in the banking sector (CR5 ratio)Share of foreign institutions as % of total assetsGraph 3.11: Hungary -Foreign ownership and concentration in the banking sector(in percent, weighted averages)Source: ECB, Structural financial indicators. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
    
4.  POLAND 

4.1.  LEGAL COMPATIBILITY 

4.1.1.  Introduction 

The main rules governing the Narodowy  Bank Polski (NBP  – Polish national bank, hereafter NBP) 
are laid down in the Act on the Narodowy Bank Polski (32) (the NBP Act) which was adopted on 29 
August  1997.  The  NBP  Act  has  not  been  amended  since  the  Commission’s  2024  Convergence 
Report.  In  absence  of  any  legislative  action  regarding  the  issues  mentioned  in  the  Commission’s 
2024  Convergence  Report,  the  comments  provided  in  the  latter  report  remain  relevant  and  are 
repeated in the 2026 assessment. 

4.1.2.  Central bank independence 

The Polish Constitution (33) and the NBP Act do not explicitly prohibit the NBP and members of its 
decision-making  bodies  from  seeking  or  taking  outside  instructions;  they  also  do  not  expressly 
prohibit  the  Government  from  seeking  to  influence  members  of  NBP  decision-making  bodies  in 
situations  where  this  may  have  an  impact  on  NBP's  fulfilment  of  its  ESCB  related  tasks.  The 
absence of such an explicit reference to Article 130 TFEU and Article 7 of the ESCB/ECB Statute or 
its  content  constitutes  a  clear  incompatibility.  However,  the  Polish  Constitutional  Court  has 
recognised that the central bank's independence is based on Article 227(1) of the Constitution. In 
this respect, it is noted that at the occasion of a future amendment to the Polish Constitution, the 
Polish  authorities  should  seize  the  opportunity  to  clarify  in  the  Constitution  that  the  principle  of 
central bank independence as enshrined in Article 130 TFEU and Article 7 of the ESCB/ECB Statute 
applies.  Alternatively,  or  in  addition,  the  NBP  Act  could  also  be  amended  to  ensure  compatibility 
with the principle of central bank independence. 

The Commission recalls the rulings of the Polish Constitutional Tribunal which considered certain 
provisions of the EU Treaties incompatible with the Polish Constitution, expressly  challenging  the 
primacy of EU law (34). The primacy of EU law is essential as regards the compatibility between the 
national  legislation,  including  the  statute  of  its  national  central  bank,  and  Articles  130  and  131 
TFEU  and  ESCB/ECB  Statute.  The  Commission  considers  that  these  rulings  of  the  Constitutional 
Tribunal are in breach of the general principles of autonomy, primacy, effectiveness and uniform 
application of Union law and the binding effect of rulings of the Court of Justice of the European 
Union.  Moreover,  the  Commission  considers  that  the  Constitutional  Tribunal  of  Poland  no  longer 
meets  the  requirements  of  an  independent  and  impartial  tribunal  previously  established  by  law. 
The  Court  of  Justice  of  the  European  Union  upheld  the  Commission’s  assessment (35).  It  should 
therefore be ensured that the primacy of Union law, in particular of Articles 130 and 131 TFEU and 
the ESCB/ECB Statute, over national law is respected by Polish public authorities and courts. 

Article  23(1)(2)  of  the  NBP  Act  provides  that  the  NBP's  Governor  has,  inter alia, to  provide  draft 
monetary policy guidelines to the Council of Ministers and the Minister of Finance. This procedure 

(32)  Ustawa o Narodowym Banku Polskim of 29 August 1997.  Consolidated version published in Dziennik Ustaw of 2022, 

item 2025. 

(33)  Konstytucja  Rzeczypospolitej  Polskiej  of  2  April  1997,  Dziennik  Ustaw  of  1997,  No  78,  item  483,  with  further 

amendments. 

(34)  Polish  Constitutional  Tribunal,  Judgment  No.  P  7/20  of  14  July  2021;  Polish  Constitutional  Tribunal,  Judgment  No. K 

3/21 of 7 October 2021. 

(35)  On 22 December 2021, the Commission launched an infringement procedure concerning the Constitutional Tribunal and 
its case-law; see Commission press release IP/21/7070. On 15 July 2022, the Commission decided to send a reasoned 
opinion  to  Poland,  to  which  Poland  replied  on  14  September  2022,  rejecting  the  reasoning  of  the  Commission.  The 
Polish  reply  did  not address  the Commission's concerns, therefore on  15  February 2023, the  Commission  decided to 
refer Poland to the Court of Justice of the European Union. On 18 December 2025, the Court of Justice of the European 
Union  delivered  the  judgement  in  Commission  v  Poland  (Case  C-448/23).  The  Court  determined  that  the  Polish 
Constitutional  Tribunal  violated  Article  19(1)  TEU,  and  the  principles  of  autonomy,  primacy,  and  effectiveness,  the 
uniform application of EU law and the binding effect of the Court of Justice’s case law. The Court also held that the 
Poland’s  Constitutional  Tribunal  does  not  meet  the  EU  law  requirements  of  an  independent  and  impartial  tribunal 
established by law.  

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provides for the opportunity for the Government to exert influence on the monetary and financial 
policy of the NBP and thus constitutes an incompatibility in the area of independence with Article 
130 TFEU and Article 7 of the ESCB/ECB Statute. Article 23(1)(2) of the NBP Act should be revised 
in order to ensure that the monetary policy guidelines are provided to the Council of Ministers and 
the Minister of Finance, if ever, only after their approval by the NBP and for information purposes 
only. 

Article 9(3) of the NBP Act provides that the Governor of the NBP shall assume his/her duties after 
taking an oath before the Parliament. This oath refers to the compliance with the provisions of the 
Polish Constitution and other laws, the economic development of Poland and the well-being of its 
citizens.  The  Governor  of  the  NBP  acts  in  dual  capacity  as  a  member  of  NBP’s  decision-making 
bodies and of the relevant decision-making bodies of the ECB. Article 9(3) of the NBP Act needs to 
be  adapted  to  reflect  the  status  and  the  obligations  and  duties  of  the  Governor  of  the  NBP  as 
member of the relevant decision-making bodies of the ECB. Moreover, the oath does not contain 
any reference to the requirement of central bank independence as enshrined in Article 130 TFEU. 
The oath as it stands now is an imperfection and should be adapted to be in line with the TFEU and 
the ESCB/ECB Statute. 

The wording of Article 9(5) of the NBP Act containing grounds for dismissal of the NBP's Governor 
could  lead  to  interpretative  issues  and  is  an  imperfection.  In  addition,  under  Article  25(3)  in 
conjunction with Article 3 and Article 1.1(3) of the State Tribunal Act (36), the Governor of the NBP 
may also be removed from office if he or she violates the Constitution or a law.  

To provide for legal certainty and ensure correctness, these provisions would need to be clarified in 
the  sense  that  these  grounds  correspond  to  a  lack  of  fulfilment  of  conditions  required  for  the 
performance  of  the  Governor’s  duties  or  a  serious  misconduct  of  which  the  Governor  has  been 
guilty, as set out in Article 14.2 of the ESCB/ECB Statute, and do not extend those grounds in any 
way. 

The State Tribunal Act provides for the suspension of the Governor from his/her duties following a 
procedure  that  contains  some  imperfections  as  regards  the  Union  law  principle  of  central  bank 
independence and Article 14.2 of the ESCB/ECB Statute. Pursuant to the second sentence of Article 
11(1) of the State Tribunal Act read in conjunction with its Articles 3 and 1.1(3), the Governor of 
the  NBP  can  be  suspended  as  a  result  of  an  indictment  by  the  Parliament  for  violating  the 
Constitution  or  an  act  of  law  when  performing  his/her duties even  before  the  State  Tribunal  has 
delivered  its  judgment  on  the  removal  from  the  office.  While  suspending  a  Governor  for  the 
purpose  of  a  (criminal)  investigation  may  be  provided  for,  the  Governor  concerned  is  always 
entitled to bring an action for annulment against such a temporary measure before the Court of 
Justice  of  the  European  Union  (CJEU)  pursuant  to  Article  14.2  of  the  ESCB/ECB  Statute.  In  that 
context,  the  Governor  may  also  request  the  CJEU  to  adopt  interim  measures  pursuant  to  Article 
279  TFEU.  The  purpose  of  such  an  action  pursuant  to  Article  14.2  of  the  ESCB/ECB Statute  is to 
enable the CJEU to review the legality of such a temporary prohibition of performing a Governor’s 
duties, which is only possible if there are sufficient indications that he/she has engaged in serious 
misconduct capable of justifying such a measure (37). Such a guarantee is a reflection of the Union 
law principle of central bank independence and is of significant importance, especially in case of a 
suspension  from  office  on  grounds  of  serious  misconduct  further  to  an  indictment  by  a 
parliamentary  body  depriving  the  Governor  of  the  possibility  to  continue  exercising  the  duties.  In 
the  absence  of  any  clear  reference  in  the  NBP  Act  or  Constitution  to  the  Union  law  principle  of 
central bank independence, the NBP Act would need to recall that the Governor of the NBP has the 
possibility  to  seek  legal  redress  against  his/her  dismissal,  or  suspension  before  the  CJEU,  as 
enshrined in Article 14.2 of the ESCB/ECB Statute. 

(36)  Ustawa  o  Trybunale  Stanu  of  26  March  1982.  Consolidated  version  published  in  Dziennik  Ustaw of  2022,  item  762, 

with further amendments. 

(37)  Judgment  of  the  Court  of  Justice  of  the  EU  (Grand  Chamber)  of  26  February  2019  Ilmārs  Rimšēvičs  and  European 
Central Bank v Republic of Latvia, Joined Cases C-202/18 and C-238/18, ECLI:EU:C:2019:139. In this ruling, the CJEU 
declared it has jurisdiction to hear and determine an action of annulment brought against a temporary measure like a 
suspension of performing duties as a Governor under Article 14.2 of the ESCB/ECB Statute. 

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In  addition,  in  order  to  increase  legal  certainty,  the  NBP  Act  should  provide  for  the  right  of  the 
NBP’s decision  making  bodies involved  in  the  performance  of  ESCB-related  tasks, other than  the 
Governor, to seek judicial review before the national courts in case of dismissal.   

Pursuant to Article 11(3) of the NBP Act, the Governor of the NBP shall represent the interests of 
the Republic of Poland within international banking institutions, and, unless the Council of Ministers 
decides  otherwise,  within  international  financial  institutions.  This  procedure  provides  for  the 
opportunity for the Council of Ministers to exert influence on the activity of the central bank and 
thus constitutes an incompatibility in the area of independence with Article 130 TFEU and Article 7 
of the ESCB/ECB Statute. 

According  to  Article  203(1)  of  Poland’s  Constitution,  the  Supreme  Audit  Office  (Najwyższa  Izba 
Kontroli (NIK)) is entitled to examine the NBP's activities as regards its legality, economic prudence, 
efficiency  and  diligence.  The  NIK  controls  are  not  performed  in  the  capacity  of  an  independent 
external  auditor,  as laid  down  in  Article  27.1  of  the  ESCB/ECB  Statute  and thus,  should  for  legal 
certainty  reasons  be  clearly  defined  so  as  to  respect  Article  130  TFEU  and  Article  7  of  the 
ESCB/ECB Statute. Furthermore, the provision's relationship with Article 69.1 of the NBP Act is also 
unclear.  The  relevant  provision  of  the  Constitution  is  therefore  incompatible  and  needs  to  be 
adapted in order to comply with Article 130 TFEU and Article 7 of the ESCB/ECB Statute. 

4.1.3.  Prohibition of monetary financing and privileged access 

Article  42  in  conjunction  with  Article  3(2)(5)  of  the  NBP  Act  allow  the  NBP  to  extend  refinancing 
loans  to  banks  in  order  to  replenish  their  funding  and  also  extend  refinancing  to  banks  for  the 
implementation of bank rehabilitation programmes, subject to conditionality under Article 42(4) of 
the  same  Act.  Against  this  background,  the  current  wording  of  Article  42(3)  and  (4)  can  be 
interpreted  as  allowing  an  extension  of  refinancing  loans  to  banks  experiencing  rehabilitation 
proceedings which, however, could end in insolvency of the banks concerned. Effective preventive 
measures  and  more  explicit  safeguards  should  be  provided  in  the  NBP  Act  to  ensure  the 
compatibility of those provisions with Article 123 TFEU. 

Article  43  of  the  NBP  Act  in  conjunction  with  Articles  270  and  306  of  the  Act  on  the  Bank 
Guarantee Fund, deposit guarantee system and forced restructuring (38) provides for NBP’s powers 
to  grant  short-term  credit  to  the  Bank  Guarantee  Fund  related  to  the  financing  of  its  deposit 
guarantee function, if a threat to financial stability arises and in view of its urgent needs. The Bank 
Guarantee Fund qualifies as a ’body governed by public law’ within the meaning of Article 123(1) 
TFEU. The Bank Guarantee Fund is closely dependent on public sector entities referred to in Article 
123(1) TFEU, as the majority of the members of the Bank Guarantee Fund’s Council are appointed 
by the Minister competent for financial institutions and the Chairman of the Financial Supervisory 
Authority  (Article  7(4)  of  the  Act  on  the  Bank  Guarantee  Fund,  deposit  guarantee  system  and 
forced restructuring). Therefore, the provisions laid down in the NBP Act and  the Act on the Bank 
Guarantee  Fund,  deposit  guarantee  system  and  forced  restructuring  regarding  the  possibility  of 
NBP  granting  loans  to  the  Bank  Guarantee  Fund  are  not  compatible  with  the  prohibition  of 
monetary financing. The relevant legal framework should be amended accordingly. 

As such, there is also no direct reference to the prohibition on monetary financing in the NBP Act. 
While  Article  220(2)  of  the  Polish  Constitution  provides  that  the  budget  shall  not  provide  for 
covering a budget deficit by way of contracting credit obligations to the State’s central bank, and 
this could be interpreted as a reference to the rationale of Article 123 TFEU, this provision is not 
compatible  with  Article  123  TFEU.  At  the  occasion  of  a  future  amendment  to  the  Polish 
Constitution,  Article  220(2)  should  be  amended  to  ensure  compatibility  with  the  aforementioned 
principle. 

(38)  Ustawa o Bankowym Funduszu Gwarancyjnym, systemie gwarantowania depozytów oraz przymusowej restrukturyzacji 

of 10 June 2016. Consolidated version published in Dziennik Ustaw of 2025, item 643. 

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4.1.4.  Integration into the Eurosystem  

Objectives 

Article 3(1) of the NBP Act sets the objectives of the NBP. It refers to the economic policies of the 
Government while it should make reference to the general economic policies in the Union, in line 
with  Article  127(1)  TFEU.  This  constitutes  an  incompatibility  with  respect  to  Article  127(1)  TFEU 
and Article 2 of the ESCB/ECB Statute. 

Tasks 

The  incompatibilities  in  the  NBP  Act  and  in  the  Polish  Constitution  in  this  area  are  linked  to  the 
following ESCB/ECB/EU tasks: 

• 

limitation of the NBP's activities to the territory of the Republic of Poland (Article  2(3) of the 
NBP Act) and absence of a general reference to the NBP as an integral part of the ESCB (Article 
227(1) of the Constitution and Article 1 of the NBP Act); 

•  definition  and  implementation  of  monetary  policy  (Article  227(1)  and  (6)  of  the  Constitution, 

Articles 3(2)(5), 12, 23, 38-50a, and 53 of the NBP Act); 

•  holding  of  foreign  reserves;  management  of  foreign  exchange  and  the  definition  of  foreign 

exchange policy (Articles 3(2)(2), 3(2)(3), 17(4)(2), 24 and 52 of the NBP Act); 

•  competences  of  the  ECB  and  of  the  EU  for  banknotes  and  coins  (Article  227(1),  second 
sentence of the Constitution and Articles 4, 31-37 of the NBP Act). The NBP shall exercise its 
responsibility for issuing currency as part of the ESCB/Eurosystem; 

•  appointment of independent auditors - Article 69(1) of the NBP Act foresees that NBP accounts 
are examined by external auditors. The NBP Act does not take into account that the auditing of 
a  central  bank  has  to  be  carried  out  by  independent  external  auditors  recommended  by  the 
Governing  Council  and  approved  by  the  Council.  It  is  incompatible  with  Article  27.1  of  the 
ESCB/ECB Statute. 

There are also some imperfections regarding the following issues: 

•  non-recognition  of  the  role  of  the  ECB  in  the  functioning  of  the  payment  systems  (Articles 

3(2)(1) of the NBP Act); 

• 

incomplete recognition of the role of the ECB and of the EU in the collection of statistics (Article 
3(2)(7) and 23 of the NBP Act); 

•  non-recognition of the role of the ECB in the field of international cooperation (Article 5(1) and 

11(3) of the NBP Act). 

4.1.5.  Assessment of compatibility 

As  regards  the  independence  of  the  central  bank,  the  prohibition  of  monetary  financing  and  the 
central bank’s integration into the Eurosystem, the legislation in Poland, in particular the NBP Act 
and  the  Constitution  of  the  Republic  of  Poland  is  not  fully  compatible  with  the  requirements  of 
Article  131  TFEU,  for  the  reasons  set  out  above.  The  Polish  authorities  should  remedy  the 
abovementioned incompatibilities and imperfections. 

4.2.  PRICE STABILITY 

4.2.1.  Respect of reference value 

The  12-month  average  inflation  rate,  which  is  used  for  the  convergence  assessment,  was  2.0 
percentage  points above  the  reference  value  at  the  time  of  the  last  convergence  assessment  of 
Poland in 2024.  In May 2026, the reference value was 2.7%, calculated as the average of the 12-
month  average  inflation  rates  in  Cyprus,  France  and  Denmark  plus  1.5  percentage  points.  The 

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Chapter 4 - Poland 

corresponding  inflation  rate  in  Poland,  was  2.9%,  i.e.  0.2  percentage  point  above  the  reference 
value.  The  12-month  average  inflation  rate  is  projected  to  increase  and  to  remain  above  the 
reference value by the end of 2026. It is also projected to increase somewhat in the first months 
of 2027, before declining for the rest of 2027 and falling below the reference value by the end of 
2027.  

4.2.2.  Recent inflation developments 

Headline inflation fell substantially from 10.8% in 2023 to an average of 3.7% in 2024 and 3.3% 
in  2025.  The  headline  figure  was  at  4.6%  in  January  2024  but  it  dropped  to  2.6%  in  December 
2025.  Most  inflation  components,  except  for  services  and  processed  food,  contributed  to  this 
reduction. Services inflation slowed from 7.3% in January 2024 to 5.4% in December 2025. Food 
prices were impacted by the phasing out of the temporary zero VAT rate on basic food products at 
the  end  of  March  2024.  Energy  inflation  was  quite  volatile,  with  monthly  figures  for  the  annual 
rate of change varying from –3.4% in January 2024 to 7.0% in January 2025. Energy prices were 
affected  by global commodity price  developments in  2024 and 2025, and the end of temporary 
government support measures which had been introduced in 2022. At the end of June 2024, the 
freeze on gas prices for households ended, and the freeze of electricity prices for households came 
to  an  end  at  the  end  of  2025.  Non-energy  industrial  goods  prices  growth  decreased  and  turned 
negative  on  a  year-on-year  basis  between  April  and  December  2025.  In  2024  and  2025,  the 
annual HICP inflation rate in Poland was on average higher than in the euro area as a whole. After 
moderating  to  2.5%  in  January  and  February  2026,  annual  HICP  inflation  increased  in  the 
subsequent  months,  from  3.2%  in  March  2026  to  3.3%  in  May  2026,  impacted  by  the  growing 
global commodity prices affected by the conflict in the Middle East.  

HICP inflation excluding energy and food decreased broadly in line with headline HICP inflation and 
was  3.9%  in  2024  and  2.8%  in  2025.  Higher  inflation  of  processed  and  unprocessed  food 
contributed  to  increased  headline  inflation  in  2025  compared  to  inflation  excluding  energy  and 
food.  In  2025,  non-energy  industrial  goods  inflation  was  negative.  At  the  same  time,  services 

65 

Table 4.1:weights  Poland - Components of inflation(percentage change)1)in total   202020212022202320242025May-262025HICP3.65.213.210.83.73.32.91000Non-energy industrial goods0.92.47.77.91.1-0.3-0.8309Energy-1.012.229.510.71.82.62.4124Unprocessed food 4.72.314.514.32.14.63.257Processed food4.42.911.914.84.65.44.7185Services7.87.212.310.66.75.75.4325HICP excl. energy, food, alcohol and tobacco4.34.79.89.23.92.82.4633HICP at constant tax rates 3.45.116.19.63.02.82.51000Administered prices HICP7.16.711.214.25.97.35.41321) Measured by the arithmetic average of the latest 12-monthly indices relative to the arithmetic average of the 12-monthly indices in the pevious period. Source: Eurostat, European Commission calculations.0246810121416Jan-20Jan-21Jan-22Jan-23Jan-24Jan-25Jan-26Jan-27PolandReference valueGraph 4.1: Poland -Inflation criterion(percent, 12-month moving average)Note: The dots at the right end of the chart show the projected reference value and 12-month average inflation rate of Poland in December 2026 and December 2027. The reference values for 2020, 2022, 2024 and 2025 refer to the reference values calculated in the previous convergence reports.Source: Eurostat, Commission's Spring 2026 Economic Forecast.-202468101214161820202020212022202320242025PolandEuro areaGraph 4.2: Poland -HICP inflation(y-o-y percentage change)Source: Eurostat. 
 
 
         
 
 
         
        
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Chapter 4 - Poland 

prices  were  affected  by  large  increases  in  salaries  and  the  minimum  wage  as  average 
compensations per workers increased by 10.9% in 2024 and 8.0% in 2025. In the first quarter of 
2026,  inflation  excluding  energy  and  food  continued  to  slow  and  reached  2.2%  due  to  declining 
prices of non-energy industrial goods (39).   

4.2.3.  Underlying factors and sustainability of inflation 

Macroeconomic policy mix and growth developments 

The Polish economy  grew by 3.2% in 2024 and 3.6% in  2025.  The main  growth drivers in  2024 
were private consumption, government consumption and inventories, while the contributions from 
investment  and  net  exports  were  negative.  The  decline  in  investment  was  affected  by  tight 
financing  conditions  and  a  base  effect  in  EU-funded  investment  projects  as  2023  was  the  final 
year when EU funding from the 2014-20 programming period could be spent. Private consumption 
was propped up by strong growth of real disposable income and improving household sentiment. 
Growth  of  exports  slowed  in  2024  reflecting  weaker  demand  in  key  trading  partners.  Growth  of 
import  volumes  increased  sharply  in  2024  reflecting  stronger  private  consumption.  In  2025, 
private  consumption  growth  continued  to  increase  as  disposable  income  increased  strongly 
alongside  receding  inflationary  pressures  and  improving  sentiment.  A  positive  contribution  from 
investment  and  government  consumption  benefitted  from  stronger  utilisation  of  EU  funds 
including from the RRF. According to the Commission’s Spring 2026 Economic Forecast, economic 
growth  in  Poland  is  set  to  remain  strong  in  2026  supported  by  private  consumption  and 
investment, including investment funded by the EU. The negative contribution to economic growth 
from  net  exports  is  expected  to  lessen.  Risks  to  the  economic  outlook  relate  to  geopolitical 
situation, commodity prices, and delays to public investments. 

Poland’s  fiscal  stance  is  estimated  to  have  been  strongly  expansionary  in  2024  (-1.7%  of  GDP), 
driven  by  nationally  financed  current  expenditure,  including  increases  in  social  benefits  and 

(39)  Comparisons of data on HICP special aggregates for 2025 with previous years should be interpreted with caution due 
to methodological changes resulting from the implementation of version 2 of the European classification of individual 
consumption according to purpose (ECOICOP). 

66 

Table 4.2:Poland - Other inflation and cost indicators1)(annual percentage change)20202021202220232024202520262)20272)HICP inflationPoland 3.65.213.210.83.73.33.62.9Euro area0.32.68.45.52.42.13.02.3Private consumption deflatorPoland 3.55.614.19.53.43.83.42.6Euro area0.62.46.86.32.42.02.92.4Nominal compensation per employeePoland 4.94.712.314.413.08.06.76.0Euro area-0.44.44.65.34.53.93.23.2Labour productivityPoland -2.23.94.10.23.93.63.32.6Euro area-4.64.81.3-1.10.00.70.50.8Nominal unit labour costsPoland 7.30.87.914.28.74.33.33.3Euro area4.5-0.43.36.54.63.22.72.3Imports of goods deflatorPoland -0.412.324.3-6.3-7.1-3.03.01.5Euro area-3.99.722.0-4.1-1.8-1.03.70.51) The figures for the euro area refer to the euro area with 21 Member States. 2) Commission's Spring 2026 Economic Forecast. Source: Eurostat, Commission's Spring 2026 Economic Forecast. 
 
   
 
 
 
Convergence Report 2026 - Technical annex 
Chapter 4 - Poland 

compensation of employees (40). Based on the Commission’s Spring 2026 Economic Forecast, the 
fiscal stance is expected to have remained expansionary in 2025 (-1.3% of GDP). It is projected to 
remain  still  expansionary  in  2026  (-0.3%  of  GDP),  driven  by  a  fiscal  impulse  from  EU  funded 
expenditure. 

Following  a  large  reduction  of  the  interest  rates  in  September  and  October  2023,  the  Monetary 
Policy  Council  (MPC)  of  the  NBP  maintained  interest  rates  unchanged  in  2024,  with  the  main 
reference policy rate at 5.75% in a context of falling but elevated inflation, still well above target. 
The  MPC  held  the  reference  interest  rate  constant  until  May  2025  when  it  was  cut  by  0.5 
percentage  point  to  5.25%,  amidst  slowing  wage  growth.  July  2025  saw  a  further  reduction  by 
0.25 percentage point to 5.0%, with the MPC noting an improving inflation outlook for 2025 and 
2026.  Further  cuts  by  0.25  percentage  point  were  made  in  September,  October,  November  and 
December when the NBP reference rate reached 4.00%, the lowest level since April 2022. In March 
2026,  the  MPC  further  cut  the  policy  rate  to  3.75%.  Throughout  2024  and  2025,  the  MPC 
highlighted  uncertainties  in  energy  price  regulations,  wage  growth  and  services  inflation,  loose 
fiscal  policy,  and,  in  2025,  also  global  geopolitical  and  trade  risk,  while  reiterating  their 
commitment to maintaining  macroeconomic and financial stability aligned with the NBP inflation 
target  in  the  medium  term.  The  2024  and  2025  Monetary  Policy  Guidelines  as  well  as  the  MPC 
statements include a possibility of intervening in the foreign exchange market.  

Wages and labour costs 

Nominal labour costs growth slowed from 14.2% 
in  2023  to  8.7%  in  2024  and  4.3%  in  2025  but 
remained  above  the  euro  area  average.  Nominal 
compensations per employee, as well as nominal 
unit labour costs growth surpassed the euro area 
average in 2024 and 2025 in a context of a tight 
large  minimum  wage 
labour  market  and 
increases which followed elevated inflation in the 
previous years. At close to 3%, the unemployment 
rate  remained  historically  low  in  both  2024  and 
2025,  and  was  one  of  the  lowest  in  the  EU.  In 
2024,  wages  of  public  administration  employees 
increased  by  about  20%,  and  in  2025  by  about 
5%. The minimum wage increased by about 20% 
in  2024  and  about  10%  in  2025.  Stronger 
economic  growth  and  a  decline  in  employment 
contributed  to  rising  labour  productivity,  which  increased  by  3.9%  in  2024,  well  above  the  euro 
area average. In 2025, labour productivity grew by 3.6%, slightly less than in 2024, despite faster 
GDP  growth  as  employment  increased  by  0.1%.  Labour  productivity  growth  partly  mitigated 
pressures on unit labour costs. Looking ahead, wages are set to continue to moderate in 2026 and 
2027  amid  lower  growth  of  the  minimum  wage  and  public  sector  salaries.  In  the  same  period, 
labour productivity is set to grow faster than the euro area average as robust economic growth in 
Poland continues.  

External factors 

Import  prices  contributed  to  a  decrease  in  inflation  in  2024  and  2025.  Prices of  imported  goods 
declined  by  7.1%  in  2024  and  3.0%  in  2025.  The  decline  was  larger  than  that  in  the  euro  area 
average which was 1.9% in 2024 and 1.0% in 2025.  

(40)  The  fiscal  stance  is  measured  as  the  change  in  general  government  primary  expenditure,  net  of  the  incremental 
budgetary  impact  of  discretionary  revenue  measures,  excluding  one-off  and  cyclical  unemployment  expenditure,  but 
including expenditure financed by non-repayable support (grants) from the Recovery and Resilience Facility and other 
EU  funds,  relative  to  medium-term  (10-year)  average  potential  GDP  growth  rate.  A  negative  (positive)  sign  of  the 
indicator corresponds to an expansionary (contractionary) fiscal policy stance. 

67 

-6-3036912151820202021202220232024202520262027Productivity (real GDP per person employed)Nominal compensation per employeeNominal unit labour costsHICP inflationGraph 4.3: Poland -Inflation, productivity and wage trends(y-o-y % change)Source: Eurostat, Commission's Spring 2026 Economic Forecast. 
   
Convergence Report 2026 - Technical annex 
Chapter 4 - Poland 

The strong appreciation of the zloty’s nominal effective exchange rate (measured against a group 
of 36 trading partners) by 6.6% in 2024 and 2.6% in 2025 contributed to a decrease in inflation. 
In January and February 2026, the nominal exchange rate was broadly stable but exchange rate 
volatility increased in March, April and May in the context of the conflict in the Middle East.  

Administered prices and taxes 

Administered  prices rose  more than headline  HICP inflation in  2024 and 2025,  due to the larger 
increase  of  administered  energy  prices  as  a  consequence  of  the  gradual  withdrawal  of  energy 
support measures. While headline inflation slowed from 3.7% in 2024 to 3.3% in 2025, the growth 
of administered prices accelerated from 5.8% to 8.0% respectively. At the same time the weight of 
administered prices in the HICP basket increased from 12.8% in 2024 to 13.2% in 2025 and was 
above the euro area average (11.9% in 2025). The weight of the administered energy prices in the 
HICP basket is significantly bigger (6.9% in 2025) compared to the euro area (1.7% in 2025). 

Changes in taxes and excise duties also contributed to higher headline inflation in 2024 and 2025. 
In 2024, the VAT rate was increased as from April for basic food products (from 0% to 5%) while it 
was decreased for  services in the beauty sector (from 23% to 8%). Excise duties on alcohol and 
cigarettes  were  increased  in  2024  and  further  in  2025.  In  addition,  in  2025  excise  duties  on 
tobacco were extended to other nicotine products, and to devices for vaping. In 2024, the changes 
in taxes and excise duties contributed to higher inflation by 0.8 percentage points, and in 2025 by 
0.5 percentage points. 

Medium-term prospects 

Looking ahead, inflation is expected to increase  in 2026 and ease in 2027 but remain  above the 
euro  area  average.  The  Commission’s  Spring  2026  Economic  Forecast  projects  annual  HICP 
inflation  to  average  3.6%  in  2026  and  2.9%  in  2027,  which  is  slightly  above  the  central  bank 
target  of  2.5%  +/-  1  percentage  point  in  2026,  but  remains  within  the  target  in  2027.  Inflation 
excluding energy and food is forecast to average 2.8% in 2026 and 3.1% in 2027. Energy inflation 
is  expected  to  follow  the  global  energy  price  shocks  with  some  delay,  as  most  households  buy 
electricity and gas at regulated prices, already set for the first half of 2026 in case of gas, and the 
whole 2026 in case of electricity. Wage growth is expected to slow only gradually, and services will 
continue to have the biggest contribution to core inflation both in 2026 and 2027. Core inflation 
will  ease  somewhat  in  line  with  lower  services  inflation.  The  inflation  outlook  remains  uncertain 
due to risks related to global commodity prices and geopolitical situation. 

The level of consumer prices in Poland was at around 69% of the euro area average in 2024. This 
suggests a potential for price level convergence in the long term, as GDP per capita in purchasing 
power  standards  (PPS),  representing  about  78%  of  the  euro  area  average  in  2025,  increases 
towards the euro area average. 

4.3.  PUBLIC FINANCES 

4.3.1.  Recent fiscal developments 

Poland’s  general  government  deficit  has  remained  above  the  3%  of  GDP  Treaty  reference  value 
since 2022, increasing from  3.4% of  GDP in 2022 to 6.4% of GDP in 2024 and  7.3% of GDP in 
2025. The expenditure-to-GDP ratio increased from 49.2% in 2024 to 50.9% in 2025. At the same 
time, the revenue-to-GDP ratio increased from 42.8% to 43.6%.  

The  increase  in  expenditures  was  due  to  higher  public  spending  driven  by  substantial  defence 
investments,  increased  social  benefits  (including  pension  indexation  and  also  new  Active  Parent 
and Widow Pension programmes), rising costs of servicing the public debt, increased salaries in the 
public sector and higher spending on healthcare. 

Revenues  grew  on  the  back  of  increasing  compensations  of  employees  in  the  economy,  as  real 
wages caught up following the period of high inflation. The main discretionary revenue measures 

68 

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Chapter 4 - Poland 

included the non-indexation of personal income tax brackets and hikes in excise duties on alcohol 
and tobacco. 

On  9  October  2024,  Poland  submitted  its  national  medium-term  fiscal-structural  plan  to  the 
Council  and  to  the  Commission.  On  26  November  2024,  the  Commission  recommended  to  the 
Council to endorse Poland’s national medium-term fiscal structural plan. Based on the plan’s policy 
commitments and macroeconomic assumptions, the net expenditure path put forward in the plan 
is consistent  with  the  requirements  set  out  in  Regulation  (EU)  2024/1263.  On  21  January  2025, 
the Council adopted a recommendation endorsing Poland’s national medium-term fiscal-structural 
plan.  The  plan  set  out  a  fiscal  adjustment  path  over  four  years,  with  maximum  net  expenditure 
growth of 6.3% in 2025, 4.4% in 2026, 4.0% in 2027 and 3.5% in 2028. The plan does not include 
a fully-fledged and quantified fiscal strategy.  

The Council opened a deficit-based excessive deficit procedure (EDP) for Poland in July 2024 as its 
government deficit exceeded the Treaty reference value of 3% of GDP and on 21 January 2025, 
the  Council  adopted  a  recommendation  with  a  view  to  bringing  an  end  to  the  situation  of  an 
excessive deficit. The recommended maximum net expenditure growth rates under the EDP were in 
line  with  those  set  out  in  the  medium-term  fiscal-structural  plan.  These  equate  to  an  annual 
adjustment of 0.5% of GDP to the structural primary balance. The EDP correction deadline is 2028, 
at which point the plan envisages a deficit of 2.9% of GDP.  

In July 2025, the Council activated the national escape clause for increases in defence spending 
for Poland, allowing Poland to deviate from, and exceed, the correction path under the EDP and the 
net expenditure path of the medium-term fiscal-structural plan. Defence expenditure increased by 
1.8% of GDP between 2021 and 2025. 

In  spring  2026,  the  Commission  assessed  the  effective  action  taken  by  Poland  to  address  the 
Excessive  Deficit  Procedure  recommendation  on  the  basis  of  the  Commission’s  Spring  2026 
Economic Forecast and Poland’s report on action taken. Net expenditure grew by 8.5% in 2025 and 
22.9%  cumulatively  over  2024  and  2025.  The  net  expenditure  growth  in  2025  was  above  the 
recommended  maximum  growth  rate  of  6.3%,  corresponding  to  a  deviation  of  0.9%  of  GDP  in 
annual  terms.  When  considering  2024  and  2025  together,  the  cumulative  growth  rate  of  net 
expenditure was also above the recommended maximum growth rate of 19.6%, corresponding to a 
deviation of 1.2% of GDP in cumulative terms. However, the cumulated deviation was  within the 
flexibility  provided  by  the  national  escape  clause,  taking  into  account  the  increase  in  defence 
spending.  Therefore,  Poland  was  assessed  to  be  compliant  with  the  recommended  maximum 
growth  rate  of  net  expenditure  in  2025.  The  Commission  assessed  Poland  as  having  taken 
effective action. As a result, the EDP was held in abeyance for Poland. 

The  fiscal  stance  was  expansionary,  by  1.3%  of  GDP,  in  2025,  driven  by  the  expansionary 
contributions  of  net  nationally  financed  expenditure,  by  1.0%  of  GDP,  and  of  EU-funded 
expenditure, by 0.3% of GDP, based on the Commission’s Spring 2026 Economic Forecast. 

The debt ratio increased from 54.8% of GDP in 2024 to 59.7% of GDP in 2025. The primary deficit 
of  4.7%  of  GDP,  interest  expenditure  of  2.5%  of  GDP  and  an  upward  stock-flow  adjustment  of 
1.0%  of  GDP  contributed  to  this  increase,  while  the  impact  of  nominal  GDP  growth  offset  the 
growth in the debt ratio by 3.4% of GDP. 

4.3.2.  Medium-term prospects 

The  2026  budget  was  adopted  by  the  Sejm  on  5  December  2025.  On  the  revenue  side,  it 
introduced  new  discretionary  measures  to  increase  revenue  in  support  of  fiscal  consolidation. 
These included a temporary increase in the corporate income tax on banks, hikes in excise duties 
on alcohol and tobacco and an increase in VAT on certain beverages. Furthermore, the introduction 
of  a  mandatory  electronic  invoicing  system  is  expected  to  enhance  tax  compliance  in  VAT 
collection. 

On the expenditure side, total nationally financed expenditure is estimated to decline slightly as a 
share  of  GDP  due  to  strong  nominal  growth  and  owing  to  the  reduced  subsidies,  reduced 

69 

Convergence Report 2026 - Technical annex 
Chapter 4 - Poland 

nationally-financed investments and restrained growth of salaries in the public sector. Conversely, 
interest expenditure and social benefits are set to increase. EU-financed investments and current 
expenditure are expected to  rise considerably in  2026,  driven by the planned acceleration of the 
Recovery and Resilience Plan (RRP) implementation.  

On  30  April  2026,  Poland  submitted  its  2026  Annual  Progress  Report,  which  included  relevant 
fiscal  outturn  data  and  projections,  and  reported  on  the  implementation  of  reforms  and 
investments addressing the main challenges identified in the European Semester country-specific 
recommendations. The  2026 Annual Progress Report also reflects Poland’s biannual  reporting on 
the progress made in delivering on its Recovery and Resilience Plan in accordance with Article 27 
of Regulation (EU) 2021/241. 

For  2026,  the  Commission’s  2026  Spring  Economic  Forecast  projects  the  general  government 
deficit  to  decrease  to  6.5%  of  GDP,  reflecting  a  restraint  in  nationally-financed  expenditure  and 
adopted  discretionary  revenue  measures.  The  Commission  forecast  also  includes  impact  of  the 
temporary reduction of VAT and excise duties on fuel adopted in late March 2026, which were in 
force until 15 May 2026. The general government debt is projected to increase to 64.5% of GDP in 
2026,  driven  by  the  high  primary  deficit,  elevated  interest  expenditure  and  upward  stock-flow 
adjustments.  

In  spring  2026,  the  Commission  assessed  Poland’s  risks  of  compliance  with  the  recommended 
maximum  growth  of  net  expenditure  in  2026,  based  on  outturn  data  for  2024-2025  and  the 
Commission’s  Spring  2026  Economic  Forecast,  which  incorporates  information  provided  in  the 
Annual  Progress  Report.  Net  expenditure  is  projected  to  grow  by  4.0%  in  2026,  and  27.9% 
cumulatively over 2024, 2025 and 2026. The projected net expenditure growth in 2026 is below 
the  recommended  maximum  growth  rate  of  4.4%.  When  considering  2024,  2025  and  2026 
together,  the  projected  cumulative  growth  rate  of  net  expenditure  is  above  the  recommended 
maximum growth rate of 24.9%, corresponding to a deviation of 1.0% of GDP in cumulative terms. 
However,  the  projected  deviation  is  within  the  flexibility  of  the  national  escape  clause  based  on 
current projections for defence spending. 

Based  on  the  Commission’s  estimates,  the  fiscal  stance  is  projected  to  remain  expansionary  in 
2026,  by  0.3%  of  GDP.  This  expansionary  fiscal  stance  is  largely  driven  by  EU-financed 

70 

Table 4.3:Poland - Budgetary developments and projections (as % of GDP unless indicated otherwise)Outturn and forecast 1)20202021202220232024202520261)20271)General government balance-6.9-1.7-3.4-5.2-6.4-7.3-6.5-6.3- Total revenue40.941.939.941.742.843.645.344.6- Total expenditure47.743.643.246.949.250.951.850.9   of which: - Interest expenditure1.31.11.52.12.22.52.82.9p.m.: Tax burden36.037.235.035.937.637.738.338.9Primary balance-5.6-0.6-1.8-3.1-4.3-4.7-3.7-3.3Fiscal stance 2)0.11.1-3.1-0.8-1.7-1.3-0.31.7Recommended growth in net expenditure (%)6.34.44.0Growth in net expenditure (%)8.54.04.9Government gross debt56.653.048.849.554.859.764.568.3p.m: Real GDP growth (%)-2.06.95.30.23.23.63.52.81) Commission's Spring 2026 Economic Forecast. 2) The fiscal stance is based on the increase in net expenditure (including that financed by the EU budget) relative to medium-term     potential GDP growth.  A positive (negative) sign indicates a contractionary (expansionary) fiscal stance (in % of GDP). The fiscal      stance profile in 2020-2023 does not include the temporary impact of COVID-19 emergency measures. Source: European Commission. 
 
        
 
 
Convergence Report 2026 - Technical annex 
Chapter 4 - Poland 

expenditure,  by  1.3%  of  GDP,  especially  the  Recovery  and  Resilience  Facility  (RRF)  grants.  The 
contribution of net nationally financed expenditure is projected to become contractionary, by 1.0% 
of  GDP, in  2026,  owing  to  the  gradual  fiscal  consolidation  planned  by  the  government,  including 
contractionary fiscal impulses from both current expenditure and investment. 

Debt  sustainability  risks  appear  high  over  the  medium  run.  Government  debt  is  projected  to 
increase  steadily  from  around  60%  in  2025  to  around  107%  of  GDP  in  2036.  This  projection 
assumes that the structural primary deficit decreases from 4.7% of GDP in 2025 to 3.4% of GDP 
in  2026  and  remains  at  that  level  (excluding  changes  in  the  cost  of  ageing)  over  the  projection 
period (41). 

the 

interest-rate 

The  sensitivity  to  possible  macro-fiscal  shocks 
also contributes to this assessment. In particular, 
if 
differential 
deteriorates  by  1.0  percentage  point  compared 
with the baseline, the projected debt ratio in 2036 
would be around 8 percentage points higher than 
in the baseline. 

growth 

Finally, several  additional  risk factors  need  to  be 
considered  in  the  assessment.  On  the  one  hand, 
risk-increasing  factors  are  related  to  (i)  the 
domestic  banks’  potential  costs  associated  with 
Swiss  franc-denominated  loans,  while  risk  is 
lower  than  previously  as  banks  have  already 
made provisions, and (ii) their exposure to non-performing loans. On the other hand, risk-mitigating 
factors  are  related  to  (i)  the  country’s  relatively  stable  financing  sources  with  a  large  domestic 
investor base, (ii) the currency denomination of debt, i.e. over three-quarters of outstanding debt is 
denominated in local currency, and (iii) the gradually increasing average maturity of external debt.  

The Polish fiscal framework saw two significant reforms in 2024, namely the amendment of the 
Public Finance Act and the introduction of the Fiscal Council.  

The  Public  Finance  Act  was  reviewed  to  amend  the  Stabilising  Expenditure  Rule  (SER),  Poland’s 
main  fiscal  rule, to  support  alignment  with  the  new  EU  fiscal  framework.  As  part  of  this reform, 
Poland  became  the  fourth  EU  member  state  to  adopt  an  ex  ante  correction  mechanism. 
Beforehand, frequent revisions of the SER formula had decreased the effectiveness of the SER in 
supporting consolidation and reversing the debt increase over the last decade. Debt rules at central 
and  local  government  level  complement  the  SER.  The  effectiveness  of  the  national  debt  rule  is 
limited by use of off-budget funds to  raise sizeable new debt (about  10% of GDP in 2025 (PLN 
400 billion)).  

The Fiscal Council Act entered into force on 1st January 2026, making Poland the last EU Member 
State to establish an independent fiscal institution. The seven-member independent fiscal council 
has a standard mandate in line with the Council Directive on National Budgetary Frameworks.  

Other reforms included new legal requirements for the development of a standardised approach to 
project appraisal for projects over the threshold value of PLN 10 million (EUR 2.3 million) and the 
inclusion of spending reviews findings in line with ministry budget plans.  

(41)  This is in line with the no-fiscal-policy-change assumption as from 2027 and implies that the adjustment that Poland 
commits  to  in  its  medium-term  plan  beyond  2026  is  not  taken  into  account  in  the  projection.  For  details  on  the 
methodology  see  European  Commission  (2026),  Debt  Sustainability  Monitor  2025,  Institutional  Paper  332,  February 
2026. 

71 

-3-2-101232024202520262027Expenditure financed by RRF grants and EU funds (e)Other capital expenditure (d)Nationally financed investment (c)Net nationally financed  primary current expenditure (b)Fiscal stance (f=a+e)Net nationally financed  primary expenditure (a=b+c+d)ExpansionaryContractionarySource: Commission's Spring 2026 Economic Forecast.Graph 4.4: Poland -Fiscal stance and its components(percent of GDP) 
 
 
 
        
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Chapter 4 - Poland 

4.4.  EXCHANGE RATE STABILITY 

The Polish zloty does not participate in ERM II. Since April 2000, Poland has been operating a free-
floating  exchange  rate  regime,  with  the  NBP  preserving  the  right  to  intervene  in  the  foreign 
exchange market, if it deems this necessary, in order to achieve the inflation target. 

Throughout 2024 the zloty remained relatively stable around  4.31 PLN/EUR on average. Between 
January and March 2025, the currency strengthened slightly from  4.25 to around 4.18. This was 
followed by a rapid depreciation and then a period of relatively minor fluctuations around 4.24. In 
May 2025, the zloty’s exchange rate against the euro averaged 4.25 PLN/EUR and stayed close to 
this level till the end of the year. In May 2026, the zloty’s exchange rate against the euro averaged 
4.24. 

International reserves held by the NBP increased from EUR 188 billion in the first quarter of 2024 
to around EUR 211 billion in the second quarter of 2025, in line with the country's macroeconomic 
stabilisation efforts. The reserves continued to increase throughout the second half of 2025 to a 
high  of  around  EUR  231  billion  at  the  end  of  2025,  reaching  around  25%  of  GDP.  The  reserves 
continued to increase in the first quarter of 2026, standing at around EUR 254 billion in May 2026. 

The  short-term  interest  rate  differential  with  the  euro  area  increased  continuously  during  2024 
and the first three months of 2025. It reached 341 basis points in March 2025. During this period, 
in line with easing the ECB policy interest rate, the euro area rate continued to fall, while the Polish 
three-month rate remained stable, contributing to spread increases. From April onwards, the Polish 
rate  also  started  to  decline,  which  led  to  the  spread  differential  to  narrow.  In  August  2025,  the 
euro  area  rate  stabilised  at  around 2.0%  while  the  Polish  rate  continued  falling.  As  a  result,  the 
spread further narrowed and reached 162 basis points in May 2026.  

4.5.  LONG-TERM INTEREST RATES 

The  long-term  interest  rates  in  Poland  used  for  the  convergence  assessment  reflect  secondary 
market yields on a single benchmark government bond with a residual maturity of around 9 years.  

The  Polish  12-month  average  long-term  interest  rate  relevant  for  the  assessment  of  the  Treaty 
criterion was 0.1 percentage point above the reference value at the time of the last convergence 
assessment  in  2024.  In  May  2026, the  latest  month  for  which  data  are  available, the  reference 
value,  given  by  the  average  of  long-term  interest  rates  in  Cyprus,  France  and  Denmark  plus  2 
percentage points, stood at 5.1%. In that month, the 12-month moving average of the yield on the 
Polish benchmark bond stood at 5.4%, i.e. slightly above the reference value. 

72 

4.04.55.0202020212022202320242025Graph 4.5: Poland -PLN/EUR exchange rate(monthly averages)Source: ECB.0100200300400500600700800202020212022202320242025Graph 4.6: Poland -3-M Wibor spread to 3-M Euribor(basis points, monthly values)Source: Polish National Bank, Eurostat and Refinitiv Workspace. 
 
         
         
Convergence Report 2026 - Technical annex 
Chapter 4 - Poland 

The long-term interest rate of Poland initially moved slightly upwards in 2024, peaking at 5.7% in 
June, in a context of a restrictive monetary policy and high fiscal deficit. Over that period, the long-
term interest rate spread vis-à-vis the German benchmark bond was relatively stable. It started to 
increase  from  319  basis  points  in  July  to  a  peak  of  355  basis  points  in  December  2024.  Since 
January 2025, the long-term interest rate has entered a period of gradual decrease as monetary 
policy  has  eased,  although  with  some  fluctuations,  reaching  5.7%  in  May  2026.  As  a  result,  the 
spread versus the German benchmark bond has narrowed steadily at around 269 basis points. 

4.6.  ADDITIONAL FACTORS 

The  Treaty  (Article  140  TFEU)  calls  for  an  examination  of  other  factors  relevant  to  economic 
integration and convergence  to be taken into account in the assessment. The assessment of the 
additional  factors  –  including  balance  of  payments  developments,  product,  labour  and  financial 
market integration – gives an important indication of a Member State's ability to integrate into the 
euro area without difficulties.  

In November 2025, the Commission published its 15th Alert Mechanism Report (AMR 2026) under 
the Macroeconomic Imbalance Procedure (MIP - see also Box 1.6), which assessed that overall risks 
in  Poland  remain  limited  but  highlighted  developments  related  to  unit  labour  costs  and  the  real 
effective  exchange  rate.  Nominal  unit  labour  costs  increased  in  2024  and  2025  more  than  the 
euro area average, raising cost competitiveness risks in  the medium term.  External sustainability 
concerns remain contained. The current account surplus deteriorated in 2024 and turned negative 
in  2025.  In  terms  of  export  market  share  against  advanced  economies,  Poland  continued  to 
perform  strongly.  Nominal  house  prices  increased  by  15%  in  2024,  but  their  growth  slowed  to 
4.9% in 2025. The AMR 2026 concluded that no In-Depth Review was warranted. 

Poland’s  recovery  and  resilience  plan  (RRP)  includes  measures  to  address  a  series  of  structural 
challenges,  in  synergy  with  other  EU  funds  including  cohesion  policy  funds,  to  boost 
competitiveness,  stimulate  sustainable  growth  and  reduce  the  country’s  territorial  and  social 
disparities.  The  RRF  funding  provides  Poland  with  EUR  54.7  billion  in  grants  and  loans  over  the 
2021-2026 period. Key reforms in Poland’s RRP include those in the areas of decarbonisation of 
the  Polish  economy,  facilitating  the  development  of  network  infrastructure  to  ensure  universal 
access to internet, reforming the health sector and labour market institutions. 

The implementation of Poland’s recovery and resilience plan is underway, with EUR 34.15  billion, 
62.4% of the total amount, disbursed till the end of June 2026. The simplification revision of the 
plan,  endorsed  by  the  Council  on  9  December  2025, included  a  reduction  in  the  loan  amount  by 
EUR 5.1 billion, bringing down the total value of the Polish RRP from EUR 59.8 billion to EUR 54.7 
billion. In 2026, which is the final year of the RRF, Poland needs to satisfactorily fulfil all remaining 
milestones and targets in the final two payment requests.   

In  addition,  cohesion  policy  provides  Poland  with  EUR  80.6  billion  for  the  2021-2027  period. 
Cohesion  policy  financing  aims  particularly  to  further  support  Poland’s  competitiveness, 

73 

02468Jan-20Jan-21Jan-22Jan-23Jan-24Jan-25Jan-26PolandReference valueGraph 4.7: Poland -Long-term interest rate criterion(percent, 12-month moving average)Source: European Commission.-20246810202020212022202320242025PolandGermanyGraph 4.8: Poland -Long-term interest rates(percent, monthly values)Source: Eurostat. 
 
      
       
Convergence Report 2026 - Technical annex 
Chapter 4 - Poland 

environmental  sustainability  as  well  as  skills  and  social  fairness.  Poland  has  made  progress  in 
implementing  cohesion  policy,  but  challenges  remain  and  regional  disparities  between  eastern 
regions and the rest of the country have continuously widened. 

4.6.1.  Developments in the balance of payments 

Poland’s external balance (i.e. the combined current and capital account) deteriorated in both 2024 
and 2025, largely driven by developments in the current account. In 2024 and 2025, the current 
account balance declined due to a lower balance of trade in goods and services in the context of a 
decline in the terms of trade for goods in 2024 as export prices fell faster than import prices.    

The  income  balance  remained  negative  over  2024-2025,  reflecting  negative  primary  income 
balance and despite the secondary income balance turning slightly positive in 2025. 

price 

external 

The balance of the financial account was negative 
in  2024  and  2025,  as  the  direct,  portfolio,  and 
other  investment  balances  remained  negative. 
Poland’s 
competitiveness 
deteriorated  in  2024  and  2025,  but  export 
performance  remained  strong.  The  nominal  and 
real effective exchange rates appreciated strongly 
in  2024.  In  2025, the  nominal  and real  effective 
exchange  rates  were  increased  slightly.  Poland’s 
export  performance  (as  measured  by  the  growth 
of  its  exports  relative  to  its  foreign  markets) 
improved in 2024 and 2025. 

The net international investment position (NIIP) as 

74 

Table 4.4:Poland - Balance of payments(percentage of GDP)202020212022202320242025Current account2.4-1.3-2.21.60.3-0.9of which: Balance of trade in goods1.3-1.3-3.30.6-0.7-1.5               Balance of trade in services4.34.55.45.24.74.3               Primary income balance -3.7-4.4-3.9-4.1-3.3-3.6               Secondary income balance0.5-0.2-0.4-0.3-0.30.0Capital account1.80.80.20.10.30.8External balance 1)4.1-0.6-2.11.70.60.0Financial account3.2-0.7-2.31.5-0.6-1.1of which: Direct investment-2.5-4.0-4.1-2.9-1.1-1.2               Portfolio investment1.21.7-0.40.6-1.2-1.3               Other investment 2)1.4-1.10.21.3-1.50.6               Change in reserves3.12.72.02.53.20.8Financial account without reserves0.2-3.4-4.2-1.0-3.8-1.8Errors and omissions-0.9-0.1-0.2-0.2-1.2-1.1Gross capital formation18.821.822.117.718.218.2Gross saving21.120.419.219.218.117.5Net international investment position-44.5-40.6-34.6-31.8-28.2-29.51) The combined current and capital account.2) Including financial derivatives.Sources: Eurostat, European Commission calculations, the National Bank of Poland.859095100105110115120125202020212022202320242025Graph 4.9: Poland -Effective exchange ratesNEERREER, HICP-deflatedREER, ULC-deflated(vs 36 trading partners; monthly averages;index numbers, 2020 = 100)Source: European Commission. 
 
        
 
 
 
      
Convergence Report 2026 - Technical annex 
Chapter 4 - Poland 

a share of GDP improved from -31.8% in 2023 to -28.2% in 2024 and slightly deteriorated to  -
29.5%  in  2025.  Moreover,  external  vulnerabilities  remain  contained,  as  a  major  part  of  the  NIIP 
consists of the accumulated stock of foreign direct investments. 

4.6.2.  Market integration 

Poland’s  economy  is  well-integrated  with  the  euro  area,  through  both  trade  and  investment 
linkages. Trade openness (see Table 4.5 for a definition), however, decreased from around 52% in 
2024  to  around  50%  of  GDP  in  2025.  The  share  of  trade  with  euro  area  partners  expressed  in 
percentage  of  GDP  saw  a  slightly  downward  trend  in  recent  years,  before  dropping  to  29%  in 
2025.  Poland's  main  goods  trading  partners  in  2025  were  Germany,  the  Netherlands,  China, 
Czechia, France, Italy. 

FDI  inflows  to  Poland  have  originated  mainly  from  the  Netherlands,  Germany,  Luxembourg  and 
France, which together provided more than a half of the FDI stock at the end of 2024.  

According to the World Bank’s 2024 World Governance Indicators,  Poland ranks close to or below 
the  average  of  the  euro  area  Member  States  for  the  six  dimensions  covered  by  the  database 
(42) (43).  According  to  the  2026  Country  Report,  Poland  has  good  lawmaking  rules,  and  their 
application  has  improved  laws.  Although  the  perception  of  corruption  when  doing  business  in 
Poland  is  relatively  low,  the  reported  level  of  experienced  corruption  is  above  the  EU  average. 
Poland has taken no measures to improve the prevention and detection of corruption. However, it 
is  taking  measures  to  improve  the  prosecution  of  corruption.  The  Polish  justice  system  has  a 
reasonable level of digitalisation, and the overall  efficiency of ordinary and administrative courts 
remains relatively stable (44). 

(42)  A Member State is considered to have a ‘low’ (‘high’) ranking compared with the average five euro area Member States 
with  the  lowest  scores  for  each  indicator  if its  score  is  at  least  0.3  percentage  point  lower  (higher)  than  that  of the 
average of this group of five euro area Member States. 

(43)  According  to the  World  Bank’s  methodology,  ‘voice  and  accountability’ captures  perceptions  of  the  extent  to  which  a 
country's citizens are able to participate in selecting their government, as well as freedom of expression, freedom of 
association, and a free media. See https://www.worldbank.org/content/dam/sites/govindicators/doc/va.pdf. 

(44)  European Commission (2026), 2026 Country Report on Poland, pp. 75-79. See also Annual Rule of Law Report, country 

chapter on Poland. 

75 

Table 4.5:Poland - Market integration202020212022202320242025Trade openness 1) (%)52.658.864.357.152.050.5Trade with euro area in goods & services 2)+3) (%)30.434.036.232.729.728.9IMD World Competitiveness Ranking 4)394750434152Internal Market Transposition Deficit 5) (%)1.81.52.11.61.72.1Real house price index 6)124.8129.0126.5125.7139.8141.3 1) (Imports + Exports of goods and services / (2 x GDP at current market prices)) x 100 (Foreign Trade Statistics, Balance of Payments). 2) (Imports + Exports of goods with EA-21 / (2 x GDP at current market prices)) x 100 (Foreign Trade Statistics). 3) Trade in services with EA-21 (average credit and debit in % of GDP at current prices) (Balance of Payments). 4) International Institute for Management Development (IMD). 5) Percentage of internal market directives not yet communicated as having been transposed, relative to the total. 6) Deflated house price index (2015=100) (Eurostat). Sources: Eurostat, World Bank, International Institute for Management Development, European Commission calculations. 
 
          
 
 
 
Convergence Report 2026 - Technical annex 
Chapter 4 - Poland 

the 

In 
Index, 
IMD’s  World  Competitiveness 
Poland’s position improved in 2024 (placing 41st) 
from 2023 (43rd position) before deteriorating in 
2025 (placing 52nd), weaker than in the previous 
years,  due  to  underperformance  in  areas  of 
business efficiency and government efficiency. In 
the  Single  Market  Scoreboard,  according  to  the 
latest  data,  Poland 
the 
transposition  of  EU  directives  as  the  deficit  was 
at 2.1% in 2025, which is above the target (0.5%) 
proposed  by  the  European  Commission  in  the 
Single  Market  Act  (2011),  and  the  second  worst 
performance in the EU. 

lags  behind 

in 

Poland  has  notified  a  complete  transposition  of  the  5th  Anti-Money  Laundering  Directive.  The 
Commission  has  assessed  the  transposition  as  complete  and  in  conformity.  Poland  has  further 
achieved a satisfactory level of transparency of legal persons, arrangements, and their beneficial 
ownership, although deficiencies remain in the application of the requirement for determining and 
verifying the identity of beneficial owners.  

As  of  December  2025,  Poland  remained  in  the  enhanced  follow-up  process  for  its  Anti-Money 
Laundering and Counter-Terrorist Financing measures, with Moneyval highlighting progress in risk 
assessment but noting gaps in new technologies. Poland is expected to report further progress by 
late 2025/early 2026 to address deficiencies. 

The labour market has performed well in 2024 and 2025, with employment rate for the 20-64 age 
group increasing to 78.8% in 2025, above the euro area average, and unemployment rate around 
3.0%,  among  the  lowest  in  the  EU.  However,  some  challenges  remain.  The  Commission’s  2026 
Country Report for Poland highlighted that participation gaps continue to constrain labour supply 
and exacerbate labour shortages, driven by demographic trends and persistently low participation 
among  several  groups,  notably  women,  persons  with  disabilities  and  older  people.  The  2025 

76 

Table 4.6:Poland - Allocation of assets by financial sub-sectorRatio to GDP (%)PLEAEA 5 smallest202020242020202420202024Financial corporations (total)166147806707199180Central bank292977516144Monetary financial institutions96843082759393Other financial intermediaries11111951772015Non-MMF investment funds1)141112512546Insurance co. and Pension Funds1614102802223Share of total (%)PLEAEA 5 smallest202020242020202420202024Central bank18191073024Monetary financial institutions585738394752Other financial intermediaries772425108Non-MMF investment funds88151823Insurance co. and Pension Funds109131111131) MMF stands for money market funds.Source: Eurostat.0.00.61.2Voice and accountabilityPolitical stability andabsence ofviolence/terrorismGovernmenteffectivenessRegulatory qualityRule of lawControl of corruptionPolandEuro area average five lowestEuro area averageGraph 4.10:Poland -World Bank's 2024 Worldwide Governance IndicatorsNote: Estimate of governance ranges from -2.5 (weak) to 2.5 (strong). Source: World Bank. 
 
  
 
 
  
Convergence Report 2026 - Technical annex 
Chapter 4 - Poland 

country-specific  recommendations  for  Poland  highlighted  the  need  to  foster  education  and  skills 
relevant to the labour market, including green and digital skills, and increase the  participation of 
disadvantaged groups in the labour market, including through effective education to employment 
transitions. Working time  patterns in Poland are among the most intensive in  the EU, which may 
have a negative impact on job quality and labour market inclusiveness. Over 76% of workers are 
working  more  than  40  hours  per  week  (EU:  47.5%),  and  only  5%  working  part-time  (EU:  17%). 
These patterns may discourage people with care responsibilities, persons with disabilities and older 
workers  from  labour  market  participation.  Persistent  participation  gaps  and  rigid  working-time 
patterns  constrain  labour  supply  and  may  reinforce  labour  shortages,  despite  Poland’s  strong 
overall  labour  market  performance.  Several  of  the  country’s  recovery  and  resilience  plan  (RRP) 
reforms  are  expected  to  improve  labour  market  participation,  strengthen  public  employment 
services, and improve access to childcare. 

The financial sector in Poland is smaller and less developed than in the euro area. Relative to GDP, 
assets  managed  by the financial sector amounted to 147% of  GDP in 2024, which is much less 
than in the euro area (707% of GDP). The financial sector’s size has decreased slightly since 2020, 
in contrast to the small increase registered in the euro area. Banking dominates the Polish financial 
sector and made up 57% of the financial sector’s assets in 2024. The central bank is  the second 
largest holder of financial assets with a share of 19%. These shares are larger than for the euro 
area  and  reflect  the  relative  underdevelopment  of  non-bank  financial  intermediaries  and 

77 

Table 4.7:Poland - Financing of the economy1)Ratio to GDP (%)PLEAEA 5 smallest202020242020202420202024Liabilities (total)273232813722325305Loans978025121510392Non-financial co. debt securities42151232Financial co. debt securities1011686135Government debt securities514194724943Listed shares22197164812Unlisted shares25201961876554Other equity443982765864Trade credits and advances212136363633Share of total (%)PLEAEA 5 smallest202020242020202420202024Loans363531303230Non-financial co. debt securities112211Financial co. debt securities458812Government debt securities191812101514Listed shares889924Unlisted shares9924262019Other equity161710111720Trade credits and advances894510111) The table focuses on the financing needs of a country and how these are met by the financial system. The table is constructed    from the liabilities of all economic sectors, but only considers loans, debt securities, equity and trade credits. The sum of liabilities    in the table only reflects the total for the liabilities considered.Source: Eurostat. 
 
  
 
 
Convergence Report 2026 - Technical annex 
Chapter 4 - Poland 

investment  funds.  They  are  comparable  to  that  of  the  five  euro  area  Member  States  with  the 
smallest  financial  sectors,  although  the  share  of  investment  funds  in  total  assets  is  more  than 
twice as high in Poland as it is in these Member States. Based on its relative size in the assets held 
by the financial sector, the insurance and pension-fund sector in Poland is comparable to the euro 
area average, although it is much smaller relative to GDP (14% of GDP in 2022 vis-à-vis 80% of 
GDP in the euro area). 

As to the financing of the economy, outstanding liabilities are  much lower than in the euro area 
(232% of GDP in 2024  vis-à-vis 722% of GDP in the euro area) and lower than in the five euro 
area Member States with the lowest financing needs. Like in the euro area, loans are the dominant 
source  of  funding  (35%  of  outstanding  liabilities  in  2024).  However,  Poland  has  less  developed 
bond  and  equity  markets  than  the  euro  area,  and  market  financing  (debt  securities  and  listed 
shares)  is  relatively  less  developed.  Equity  and  private  sector  debt  markets  represented  14%  of 
liabilities  in  2024  (and  only  32%  of  GDP  altogether),  compared  to  19%  of  liabilities  in  the  euro 
area, where private-sector debt and listed stocks amounted to 73% and 64% of GDP respectively. 
However,  Poland  is  still  relatively  comparable  to  the  five  euro  area  Member  States  with  the 
smallest  financing  needs  and  its  listed  equity  market  is  more  developed  than  in  these  Member 
States. As a share of GDP, the government debt market is slightly more than half as large as that 
of the euro area average.  

Poland’s banking sector is well-integrated into the 
euro area financial sector, in particular through a 
high  level  of  foreign  ownership  in  its  banking 
system. The share of foreign-owned institutions in 
total  bank  assets  stood  at  41%  in  2024.  Bank 
concentration,  as  measured  by  the  market  share 
of  the  five  largest  credit  institutions  in  total 
assets,  has  increased  notably  since  2018,  and 
reached  59%  in  2024,  almost  10  percentage 
points above the euro area average. 

78 

010203040506070PL, 2020PL, 2024EA, 2020EA, 2024Concentration in the banking sector (CR5 ratio)Share of foreign institutions as % of total assetsGraph 4.11: Poland -Foreign ownership and concentration in the banking sector(in percent, weighted averages)Source: ECB, Structural financial indicators.  
 
 
    
5.  ROMANIA 

5.1.  LEGAL COMPATIBILITY 

5.1.1.  Introduction 

The Banca Naţională a României (BNR – Romanian national bank, hereafter ‘BNR’) is governed by 
Law No. 312 on the Statute of the  National Bank of Romania of 28 June 2004 (hereinafter ‘the 
BNR Law’) which entered into force on 30 July 2004. 

The BNR law has not been amended since the Commission’s 2024 Convergence Report. Therefore, 
the  comments  provided  in  the  Commission’s  2024  Convergence  Report  remain  relevant  and  are 
repeated in this year’s assessment. 

5.1.2.  Central bank independence 

As regards central bank independence, a number of incompatibilities and imperfections have been 
identified with respect to the TFEU and the ESCB/ECB Statute. 

According  to  Article  33(10)  of  the  BNR  Law,  the  Minister  of  Finance  and  one  of  the  State 
Secretaries in the Ministry of Finance may participate, without voting rights, in the meetings of the 
BNR Board. Although a dialogue between a central bank and third parties is not prohibited as such, 
this dialogue should be framed in such a way that the Government should not be in a position to 
influence  or  to  appear  to  influence  the  central  bank's  decision-making  in  areas  for  which  its 
independence  is  protected  by  Union  law.  The  active  participation  of  the  Minister  and  one  of  the 
State Secretaries, even without voting rights, in discussions of the BNR Board where BNR policy is 
set, could structurally offer to the Government the possibility to influence the central bank, or to 
appear to be able to do so, when taking its key decisions. Against this background, Article 33(10) of 
the BNR Law is incompatible with Article 130 TFEU. 

Article 3(1) of the BNR Law needs to be amended with a view to ensuring full compatibility with 
Article 130 TFEU and Article 7 of the ESCB/ECB Statute. Pursuant to Article 3(1) of the BNR Law, 
the members of the BNR's decision-making bodies shall not seek or take instructions from public 
authorities or from any other institution or authority. First, to ensure legal certainty, it should  be 
clarified that the BNR’s institutional independence is also protected vis-à-vis national, foreign and 
Union  institutions,  bodies,  offices  or  agencies.  Moreover,  Article  3  should  expressly  oblige  the 
government  not  to  seek  to  influence  the  members  of  the  BNR’s  decision-making  bodies  in  the 
performance of their tasks. 

The BNR Law should be supplemented by rules and procedures ensuring a smooth and continuous 
functioning of the BNR in case of the Governor’s termination of office (e.g. due to expiration of the 
term of office, resignation or dismissal). So far, Article 33(5) of the BNR Law provides that in case 
the Board of BNR becomes incomplete, the vacancies shall be filled following the procedure for the 
appointment of the members of the Board of BNR. Article 35(5) of the BNR Law provides that in 
case  the  Governor  is  absent  or  incapacitated  to  act,  the  First  Deputy  Governor  shall  replace  the 
Governor. 

Pursuant  to  Article  33(9)  of  the  BNR  Law,  the  decision  to  recall  a  member  of  the  BNR  Board 
(including  the  Governor)  from  office  may  be  appealed  to  the  Romanian  High  Court  of  Cassation 
and  Justice.  However,  Article  33(9)  of  the  BNR  Law  remains  silent  on  the  possibility  of  judicial 
review  by  the  Court  of  Justice  of  the  European  Union,  pursuant  to  Article  14.2  of  the  ESCB/ECB 
Statute, in the event of the Governor’s dismissal. This imperfection should be corrected. 

Article 33(7) of the BNR Law provides that no member of the Board of BNR may be recalled from 
office for other reasons or following a procedure other than those provided in Article 33(6) of this 
Law. Law 161/2003 on certain measures for transparency in the exercise of public dignities, public 
functions and business relationships and for the prevention and sanctioning of corruption and the 
Law 176/2010 on the integrity in the exercise of public functions and dignities define the conflicts 
of interest incompatibilities applicable to the Governor and other members of the Board of the BNR 

79 

Convergence Report 2026 - Technical annex 
Chapter 5 - Romania 

and require them to report on their interests and wealth.  It should be clarified that the sanctions 
for the breach of obligations under those laws do not constitute extra grounds for dismissal of the 
Governor, in addition to those contained in Article 33 of the BNR Law. 

According  to  Articles  21  and  23  of  the  Law  concerning  the  organisation  and  functioning  of  the 
Court of Auditors (No 94/1992), the Court of Auditors is empowered to control the establishment, 
management  and  use  of  the  public  sector’s  financial  resources,  including  the  BNR’s  financial 
resources,  and  to  audit  the  performance  in  the  management  of  the  funds  of  the  BNR.  Those 
provisions constitute an imperfection as regards Article 27.1 of the ESCB/ECB Statute and thus, to 
ensure  legal  certainty,  the  Law  should  state  clearly  that  the  scope  of  audits  by  the  Court  of 
Auditors is without prejudice to the activities of the BNR’s independent external auditors. 

Article 43 of the BNR Law provides that the BNR must transfer to the State budget an 80% share 
of the net revenues left after deducting expenses relating to the financial year, including provisions 
for  credit risk, and any losses relating to previous financial years that remain uncovered. Such a 
procedure  might,  in  certain  circumstances,  be  seen  as  an  intra-year  credit  (see  Section  5.1.3.) 
which negatively impacts on the financial independence of the BNR. A Member State may not put 
its  central  bank  in  a  position  where  it  has  insufficient  financial  resources  to  carry  out  its  ESCB 
tasks,  and  also  its  own  national  tasks,  such  as  financing  its  administration  and  own  operations. 
Article  43(3)  of  the  BNR  Law  also  provides  that  the  BNR  sets  up  provisions  for  credit  risk  in 
accordance with its rules, after having consulted the Ministry of Finance. The central bank must be 
free  to  independently  create  financial  provisions  to  safeguard  the  real  value  of  its  capital  and 
assets. Article 43 of the BNR Law is therefore incompatible with Article 130 TFEU and Article 7 of 
the  ESCB/ECB  Statute  and  should  be  amended  to  ensure  that  the  above  arrangements  do  not 
undermine the ability of the BNR to carry out its tasks in an independent manner. 

5.1.3.  Prohibition of monetary financing and privileged access 

According to Article 26 of the BNR Law, the BNR, under exceptional circumstances and only on a 
case-by-case  basis,  may  grant  loans  to  credit  institutions  which  are  unsecured  or  secured  with 
assets  other  than  assets  eligible  to  collateralise  the  monetary  or  foreign  exchange  policy 
operations of the BNR. It cannot be excluded that such lending results in the provision of solvency 
support  to  a  credit  institution  that  is  facing  financial  difficulties  and  thereby  would  breach  the 
prohibition of monetary financing and be incompatible with Article 123 TFEU. Article 26 of the BNR 
Law should be amended to preclude such lending operations. 

Articles 6(1) and 29(1) of the BNR Law prohibit direct purchases by the BNR in the primary market 
of debt instruments issued by the State, national and local public authorities, autonomous public 
enterprises, national corporations, national companies and other majority state-owned companies. 
Article 6(2) of the BNR Law extends this prohibition to the debt instruments issued by other bodies 
governed by public law and public undertakings of other Union Member States. Article 7(2) of the 
BNR Law prohibits the BNR from granting overdraft facilities or any other type of credit facility to 
the  State,  central  and  local  public  authorities,  autonomous  public  service  undertakings,  national 
societies, national companies and other majority state owned companies. Article  7(4)  of the BNR 
Law  extends  this  prohibition  to  other  bodies  governed  by  public  law  and  public  undertakings  of 
Member  States.  These  provisions  do  not  fully  mirror  the  entities  listed  in  Article  123  TFEU 
(amongst  others,  a  reference  to  Union  institutions  is  missing).  In  consequence,  they  have  to  be 
amended.  

Pursuant  to  Article  7(3)  of  the  BNR  Law,  majority  state-owned  credit  institutions  are  exempted 
from  the  prohibition  on  granting  overdraft  facilities  and  any  other  type  of  credit  facility  under 
Article 7(2) of the BNR Law and benefit from loans granted by the BNR in the same way as any 
other  credit  institution  eligible  under  the  BNR's  regulations.  Article  7(3)  of  the  BNR  Law  is 
incompatible with Article 123(2) TFEU, which only exempts publicly owned credit institutions ‘in the 
context of the supply of reserves by central banks’. The national provisions should be aligned. 

As noted above in Section 5.1.2., Article 43 of the BNR Law provides that the BNR shall transfer to 
the State, on a monthly basis, 80% of its net revenues left after deduction of the expenses related 

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to the financial year and the uncovered loss of the previous financial years. This provision does not 
rule  out  the  possibility  of  an  intra-year anticipated  profit  distribution  under  circumstances  where 
the BNR would accumulate profit during the first half of a year but suffer losses during the second 
half. The adjustment would be made by the State only after the closure of the financial year and 
would thus imply an intra-year credit to the State, which would breach the prohibition on monetary 
financing.  This  provision  is,  therefore,  incompatible  with  the  Article  123  TFEU  and  must  be 
amended. 

5.1.4.  Integration into the Eurosystem  

Objectives 

Pursuant  to  Article  2(3)  of  the  BNR  Law,  the  secondary  objective  of  the  BNR  is  to  support  the 
State’s  general  economic  policy.  Article  2(3)  of  the  BNR  Law  should  contain  a  reference  to  the 
objective of supporting ‘the general economic policies in the Union with a view to contributing to 
the achievement of the objectives of the Union as laid down in Article 3 of the Treaty on European 
Union’, as per Article 127(1) TFEU and Article 2 of the ESCB/ECB Statute. 

Tasks 

The incompatibilities in the BNR Law are linked to the following ESCB/ECB tasks: 

•  absence of a general reference to the BNR as being an integral  part of the ESCB (Article 1 of 

the BNR Law); 

•  definition of monetary policy and monetary functions, operations and instruments of the ESCB 
(Articles 2(2)(a), 5,  6(3), 7(1), 8, 19, 20, 21(1) and (2), 22(3) and 33(1)(a) and (e) of the BNR 
Law); 

•  conduct of foreign exchange operations and the definition of foreign exchange policy (Articles 

2(2)(a) and (d), 9 and 33(1)(a) of the BNR Law); 

•  holding  and  management  of  foreign  reserves  (Articles  2(2)(e),  9(2)(c),  30  and  31  of  the  BNR 

Law); 

• 

right to authorise the issue of banknotes and the volume of coins (Articles 2(2)(c), 12 to 18 of 
the BNR Law); 

•  non-recognition  of  the  role  of  the  ECB  and  of  the  Council  in  regulating,  monitoring  and 

controlling foreign currency transactions (Articles 10 and 11 of the BNR Law); 

• 

lack of reference to the role of the ECB in payment systems (Articles 2(2)(b), 22 and 33(1)(b) of 
the BNR Law). 

There are also imperfections regarding the following issues: 

•  non-recognition of the role of the ECB and the EU in the collection of statistics (Article 49 of the 

BNR Law);  

•  non-recognition  of  the  role  of  the  ECB  and  of  the  Council  in  the  appointment  of  an  external 

auditor (Article 36(1) of the BNR Law);  

•  absence of an obligation to comply with the ESCB/ECB regime for the financial reporting of NCB 

operations (Articles 37(3) and 40 of the BNR Law); 

•  non-recognition of the ECB’s right to impose sanctions (Article 57 of the BNR Law). 

5.1.5.  Assessment of compatibility 

As  regards  the  independence  of  the  BNR,  the  prohibition  of  monetary  financing  and  the  BNR’s 
integration into the Eurosystem, the legislation in Romania, in particular the BNR Law, is not fully 

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compatible  with  the  requirements  of  Article  131  TFEU,  for  the  reasons  set  out  above.  The 
Romanian authorities should remedy the above-mentioned incompatibilities and imperfections. 

5.2.  PRICE STABILITY 

5.2.1.  Respect of reference value 

The  12-month  average  inflation  rate,  which  is  used  for  the  convergence  assessment,  was  3.5 
percentage  points  above  the  reference  value  at  the  time  of  the  last  convergence  assessment  of 
Romania in 2024.  In  May  2026, the reference  value was  2.7%, calculated as the average of the 
12-month average inflation rates in Cyprus, France and Denmark plus 1.5 percentage points. The 
corresponding  inflation  rate  in  Romania  was  8.4%,  which  was  5.7  percentage  points  above  the 
reference value. The 12-month average inflation rate is projected to decrease in the second half of 
2026, but to remain well above the reference value by the end of 2026. It is projected to continue 
decreasing in 2027, but remain above the reference value through to the end of 2027. 

5.2.2.  Recent inflation developments 

Annual  HICP  inflation  in  Romania  rose  to  6.8%  in  2025,  from  5.8%  in  2024.  Disinflation,  which 
followed the sharp rise in energy prices in 2022,  stalled and subsequently reversed in mid-2025. 
The  year-on-year  headline  HICP  inflation  rate  fell  from  7.3%  in  January  2024  to  4.8%  in 
September 2024,  before rebounding temporarily to 5.5% in December  2024. It then resumed its 
fall at the beginning of 2025 to 4.9% in April, before increasing steadily and significantly to 8.6% 
in September and remaining at that level in December 2025. The rise in inflation in the second half 
of  2025  was  largely  the  effect  of  the  elimination  of  the  household  electricity  price  cap  in  July 
2025, combined with a rise in VAT and excise duties. After having remained broadly flat in 2023 
and 2024, energy prices rose by 7.5% in 2025. Processed food prices increased by 6.5% in 2025. 
Prices of unprocessed food and services also surged by about 7% and 8% respectively, reflecting 
still  strong  underlying  inflation  pressures  and  the  impact  of  volatile  weather  conditions  on 
agriculture. Among inflation components, administered prices recorded the highest growth rate of 
8.9% in 2025, up from 5.3% in 2024 due to the increase in indirect taxes. Over the past two years, 
annual HICP inflation in Romania was higher than in the euro area by around 4 percentage points 
on average. The increase in energy prices following the conflict in the Middle East caused headline 
inflation to increase to 9.7% in May 2026 from 8.3% in February 2026. 

HICP excluding energy and food declined from 8.4% in 2024 to 6.6% in 2025, coming in slightly 
below  headline  HICP  inflation, as  wage  growth  moderated  significantly.  In  year-on-year terms,  it 
fell from a peak of 10.4% in April 2024 to 5.6% by July 2025, before increasing again to 8.3% in 
December  2025,  as  higher  energy  prices  gradually  impacted  the  wider  economy.  A  slowdown  in 
private consumption and domestic demand resulted in a somewhat lower increase in HICP inflation 
excluding  energy  and  food.  Persistent  services  inflation,  which  increased  by  8.1%  and  8.0%  in 

82 

02468101214Jan-20Jan-21Jan-22Jan-23Jan-24Jan-25Jan-26Jan-27RomaniaReference valueGraph 5.1: Romania -Inflation criterion(percent, 12-month moving average)Note: The dots at the right end of the chart show the projected reference value and 12-month average inflation rate of Romania in December 2026 and 2027. The reference values for 2020, 2022, 2024 and 2025 refer to the reference values calculated in the previous convergence reports.Source: Eurostat, Commission's Spring 2026 Economic Forecast.-20246810121416202020212022202320242025RomaniaEuro areaGraph 5.2: Romania -HICP inflation(y-o-y percentage change)Source: Eurostat. 
 
            
          
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2024 and 2025 respectively, contributed significantly to HICP inflation excluding energy and food, 
while non-energy industrial goods inflation declined from 8.6% in 2024 to 5.5% in 2025. Following 
a  freeze  in  public  sector  wages  and  the  cooling  of  the  labour  market,  wage  growth  more  than 
halved  from  about  17%  in  2024  to  8%  in  2025.  In  the  first  quarter  of  2026,  core  inflation 
remained elevated at around 8.2%, reflecting persistent services inflation, still high domestic cost 
pressures and the pass-through of earlier increases in indirect taxes. 

5.2.3.  Underlying factors and sustainability of inflation 

Macroeconomic policy mix and growth developments 

After a  strong  post-pandemic  rebound  in  economic  activity, favoured  by  lax  monetary  conditions 
and  expansionary  fiscal  policy,  real  GDP  growth  dropped  to  below  1%  in  both  2024  and  2025 
which is notably lower than Romania’s potential growth rate. In 2024, real GDP growth was 0.9% 
after  2.4%  in  2023,  despite  buoyant  private  consumption  supported  by  lax  fiscal  and  incomes 
policies  in  an  electoral  year.  The  latter  had  only  a  limited  impact  on  GDP  growth,  because  of 
investment underperformance and the high negative contribution of net exports, which also led to 
a  widening  of  the  external  deficits.  Sluggish  external  demand  from  Romania’s  main  trading 
partners,  a  rapid  increase  in  wages  and  high  energy  prices  weighed  on  industrial  production, 
residential  construction,  IT  and  transport  services,  while  a  severe  drought  led  to  a  significant 
decline in agriculture output. 

Real  economic  growth  remained  subdued  also  in  2025  at  0.7%,  as  the  necessary  fiscal 
consolidation  together  with  resurging  inflation  dampened  private  and  public  consumption,  while 
growth  drivers  rebalanced  towards  investment  and  net  exports.  At  the  same  time,  a  moderate 
recovery  in  gross  fixed  capital  formation  on  the  back  of  improved  business  confidence,  further 
reinforced  by  the  acceleration  of  RRP  projects  supported  the  economy.  Gross  fixed  capital 
formation grew by 4.1%, recovering from the decline in 2024. Import growth was contained by the 
strong  deceleration in private consumption  while exports were resilient, reducing significantly the 
drag to growth of net exports. According to the Commission’s Spring 2026 Economic Forecast, the 
Romanian  economy  is  set  to  stagnate  in  2026,  with  a  growth  rate  of  just  0.1%.  Falling  private 
consumption  due  to  sizeable  fiscal  consolidation  and  the  hike  in  energy  prices  following  the 
conflict  in  the  Middle  East  is  projected  to  be  largely  offset  by  robust  investment  helped  by  an 
acceleration  of  RRF-funded  spending  and  a  small  positive  contribution  to  growth  of  net  exports. 
Real  GDP  growth  is  forecast  to  rebound  at  2.3%  in  2027,  as  lower  inflation  stabilises  real 
disposable income, supporting a turnaround in both  consumption and investment, while financing 
conditions turn more favourable. Inflation is forecast to decline as of the second half of 2026, but 
at a slower pace, due to the hike in energy prices following the conflict in the Middle East. 

83 

Table 5.1:weights  Romania - Components of inflation(percentage change)1)in total   202020212022202320242025May-262025HICP2.34.112.09.75.86.88.41000Non-energy industrial goods2.32.65.79.68.65.56.2302Energy-7.415.231.7-0.90.77.513.898Unprocessed food 4.50.715.315.44.17.37.3119Processed food5.54.814.212.93.96.57.8232Services2.72.76.39.98.18.09.9248HICP excl. energy, food, alcohol and tobacco2.52.66.09.78.46.67.8550HICP at constant tax rates 2.33.912.29.55.15.46.01000Administered prices HICP1.21.87.33.95.38.912.91171) Measured by the arithmetic average of the latest 12-monthly indices relative to the arithmetic average of the 12-monthly indices in the previous period.Source: Eurostat, European Commission calculations. 
 
          
 
 
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Romania’s fiscal stance (45) is estimated to have been contractionary in 2025, at 2.2% of GDP and, 
based  on  the  Commission’s  Spring  2026  Economic  Forecast,  the  stance  is  expected  to  remain 
contractionary in 2026 (2.5% of GDP) and 2027 (0.7% of GDP). 

Amid  disinflationary  pressures,  Banca  Naţională  a  României  (BNR),  operating  within  an  inflation 
targeting framework (46), eased its monetary policy stance by lowering the policy rate by a total of 
50  basis points  between  July  and  August  2024.  Thereafter,  as inflationary  pressures  resurfaced, 
the  BNR  paused  further  rate  cuts  from  mid-2024  onwards.  The  policy  rate  remained  stable  at 
6.5% through to June 2026. The reserve requirement ratio on accounts opened with BNR for the 
foreign currency holdings of the credit institutions has been 5% since November 2020. The reserve 
requirement ratio for leu denominated holdings has also been unchanged at 8% since May 2015. 

Wages and labour costs 

In  2025,  the  labour  market  cooled  in  line  with 
subdued  growth  and  wage  moderation.  The 
employment rate for people aged 20-64 fell from 
69.5%  in  2024  to  69%  in  2025,  remaining  well 
below  the  EU  average  of  76.1%.  In  parallel,  the 
unemployment  rate  increased  gradually  from 
5.4% in 2024 to 6.1% in 2025, slightly exceeding 
the EU average of 6%. 

Although  it  has  improved  significantly  over  the 
past  decade,  the  still  relatively  low  employment 
rate  in  Romania  reflects  a  larger  share  of  semi-
subsistence  agricultural  workers  (who  are  not 
counted in the labour force according to Eurostat 
methodology),  high  net  outward  migration  which 
affects predominantly younger population groups 
and a large contingent of people who work abroad but maintain their residence in Romania (IMF, 
2023, Selected issues) (47). The labour force participation rate also appears relatively low across all 
population  groups,  but  lower  skilled  women,  older  man  with  secondary  education  and  the  youth 
stand out. The latter groups also display higher unemployment rates on average. At the same time, 
the vast majority of employed work full-time. Part-time employees represented only about 2% of 
total employment in Romania relative to a high EU average of 17% in 2024.  These labour market 
weaknesses 
limit  Romania’s  growth  potential  and  ability  to  sustain  convergence  and 
competitiveness over time. 

The increase in labour market slack following subdued economic activity, together with the freeze 
of  public  wages  in  2025  and  2026  and  minimum  wage  increases  in  line  with  inflation  and 
productivity growth, following the new mechanism for setting the minimum wage under the RRP, 
have  reduced  wage  pressures  and  supported  cost  competitiveness  and  exports.  Nominal 
compensation per employee decelerated strongly to around 8% in 2025 from more than 17% in 
2024, but still remained more than double the euro area average. In the second half of 2025 real 
wages declined markedly due to the surge in inflation. The very large real wage increases of 2024, 
which also reflected real-wage catching-up, coincided with weak productivity growth and a sharp 
deterioration  in  unit  labour  costs.  In  2025,  real  compensation  growth  ran  below  productivity 
growth, helping to ease  some of the  cost competitiveness  pressure accumulated in  recent years. 
Wage  growth  is  forecast  to  moderate  further  in  2026  and  2027,  ensuring  real  wage  growth 

(45)  The  fiscal  stance  is  measured  as  the  change  in  general  government  primary  expenditure,  net  of  the  incremental 
budgetary  impact  of  discretionary  revenue  measures,  excluding  one-off  and  cyclical  unemployment  expenditure,  but 
including expenditure financed by non-repayable support (grants) from the Recovery and Resilience Facility and other 
EU  funds,  relative  to  medium-term  (10-year)  average  potential  GDP  growth  rate.  A  negative  (positive)  sign  of  the 
indicator corresponds to an expansionary (contractionary) fiscal policy stance. 

(46)  As from 2013, the BNR follows a flat multi-annual inflation target of 2.5% (± 1 percentage point). 
(47)  IMF Country Report No. 23/396, Romania – Selected Issues, December 2023.  

84 

-40481216202420202021202220232024202520262027Productivity (real GDP per person employed)Nominal compensation per employeeNominal unit labour costsHICP inflationGraph 5.3: Romania -Inflation, productivity and wage trends(y-o-y % change)Source: Eurostat, Commission's Spring 2026 Economic Forecast. 
          
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Chapter 5 - Romania 

dynamics  below  labour  productivity  over  the  forecast  horizon  and  helping  restore  somewhat  the 
deteriorated cost competitiveness in recent years. 

Despite the slowdown in real GDP growth, labour productivity rose by around 4% in 2025, because 
of  a  hefty  reduction  in  employment.  It  was  higher  than  in  the  euro  area  on  average,  but  with 
labour compensation growing also faster than in the euro area, the increase in nominal unit labour 
costs (ULC) remained above the euro area average in 2025, a trend likely to continue into 2026. 

External factors 

Import  prices  play  a  significant  role  in  domestic  price  formation  as  a  result  of  Romania’s strong 
trade links with other EU Member States, and large import volumes are reflected in a high trade 
deficit. Romania is a net importer of energy and the decline in international energy prices in 2024 
and 2025 from the peaks in preceding years was transmitted also to domestic inflation. Imported 
inflation  was  also  dampened  by  a  moderation  in  international  food  prices  in  2024.  Therefore, 
import  price  inflation  (measured  by  the  imports  of  goods  deflator)  turned  negative  to  -0.8%  in 
2024  and  contributed  to  lower  HICP  inflation.  It  was,  however,  less  than  half  of  the  decline 
recorded  in  the  euro  area.  In  2025,  international  food  prices  resumed  their  ascending  trend  and 
energy prices became more volatile. Import price inflation was positive again in 2025, at close to 
2%,  and  above  the  euro  area  average.  In  early  2026,  import  price  pressures  appear  to  have 
strengthened again, as energy prices surged above 10% amid heightened geopolitical tensions in 
the  Middle  East.  Looking  ahead,  imported  inflation  is  expected  to  continue  contributing  to  lower 
HICP inflation in the next two years. 

The  leu’s  nominal  effective  exchange  rate  (measured  against  a  group  of  36  trading  partners) 
continued to appreciate slightly, by less than 1% in 2024, helped by sustained capital inflows, in 
particular portfolio  inflows.  The  trend  changed  in  2025,  when  the  leu  depreciated  by  almost  3% 
against the euro following political uncertainty and market stress in May 2025. Nevertheless, the 
nominal  effective  exchange  rate  remained  broadly  stable  in  2025,  while  the  real  effective 
exchange  rate  (REER),  both  HICP-  and  ULC-deflated  REERs,  appreciated  by  around  3%.  Overall, 
Romania’s  REER  appreciation  was  similar  to  that  of  many  CESEE  peers  during  this  period,  which 
shielded somewhat export competitiveness. 

85 

Table 5.2:Romania - Other inflation and cost indicators1)(annual percentage change)20202021202220232024202520262)20272)HICP inflationRomania2.34.112.09.75.86.87.03.7Euro area0.32.68.45.52.42.13.02.3Private consumption deflatorRomania2.44.613.99.06.47.67.64.0Euro area0.62.46.86.32.42.02.92.4Nominal compensation per employeeRomania4.06.413.720.317.38.24.96.2Euro area-0.44.44.65.34.53.93.23.2Labour productivityRomania-1.64.83.43.5-0.74.30.61.9Euro area-4.64.81.3-1.10.00.70.50.8Nominal unit labour costsRomania5.71.59.916.218.03.84.44.2Euro area4.5-0.43.36.54.63.22.72.3Imports of goods deflatorRomania-2.510.218.70.7-0.81.13.21.8Euro area-3.99.722.0-4.1-1.8-1.03.70.51) The figures for the euro area refer to the euro area with 21 Member States. 2) Commission's Spring 2026 Economic Forecast. Source: Eurostat, Commission's Spring 2026 Economic Forecast. 
 
   
 
 
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Chapter 5 - Romania 

Administered prices and taxes 

The weight of administered prices in the 2025 Romanian HICP basket is the same as the euro area 
average (11.9%). In 2024, the average annual change in administered prices at 5.3% was below 
the headline inflation rate, similarly to previous years and the longer-term trend. However, due to 
the removal of the cap on electricity prices, administered prices rose by 8.9% on average in 2025 
and were a major contributor to the pick-up in inflation. 

Following  significant  VAT,  excises  and  other  tax  increases,  tax  changes  pushed  up  headline 
inflation in both 2024 and 2025. HICP inflation measured at constant taxes was 5.1%, about 0.7 
percentage point below actual headline inflation in 2024, whereas this differential widened to 1.4 
percentage points in 2025. 

Medium-term prospects 

Prices are set to decelerate in both 2026 and 2027, despite an upward inflation shock linked to the 
escalation of tensions in the Middle East and higher energy prices. The strong moderation of wage 
growth is also supportive of a steady disinflation path, whereas the expected liberalisation of gas 
prices in 2027 may counterbalance this trend to some extent. Underlying inflationary pressures are 
subsiding as well, with HICP excluding energy and food inflation likely to lead the deceleration in 
price increases. In the Commission’s Spring 2026 Economic Forecast, average annual HICP inflation 
is  projected  to  be  7.0%  in  2026,  before  slowing  to  3.7%  in  2027  and  thereby  approaching  the 
Central Bank inflation target band (2.5% ±1 percentage point).  

Risks to the inflation outlook are tilted towards a more gradual reduction in headline HICP inflation 
if the impact of higher energy prices related to geopolitical tensions in the Middle East, as well as 
the planned liberalisation of gas prices in 2027, prove more persistent than foreseen. According to 
the  Commission’s  Spring  2026  Economic  Forecast,  the  nominal  ULC  growth  rate  in  Romania  is 
expected to accelerate only modestly in both 2026 and 2027, but still remain above those in the 
euro area. In  real terms, however, ULC  growth is set to  remain in negative territory in 2026 and 
turn only slightly positive in 2027.  

In  2024,  the  level  of  consumer  prices  in  Romania  increased  to  about  61%  of  the  euro  area 
average. The GDP per capita further converged to around 75% of the euro area average in terms 
of purchasing  power standards in 2025.  Due to the catching-up of the Romanian economy, price 
level convergence is expected to continue over the next years. 

5.3.  PUBLIC FINANCES 

5.3.1.  Recent fiscal developments 

Romania’s general government deficit decreased from 9.3% of GDP in 2024 to close to 8% of GDP 
in 2025, but it remained well above the 3% of GDP Treaty reference value.  

The  revenue  to-GDP  ratio  was  broadly  stable  in  2024  and  then  increased  in  2025,  supported  by 
stronger  tax  collection  and  by  two  large  consolidation  packages  with  a  combined  estimated 
revenue and expenditure yield of about 3.7 percentage points of GDP. In July 2025, the authorities 
adopted  a  first  fiscal  package  amounting  to  more  than  3%  of  GDP,  including  an  immediate 
increase in the two main VAT rates (from 9% and 19% to 11% and 21%), a health contribution for 
higher-income  pensioners,  higher  taxation  of  the  banking  sector,  and  a  higher  dividend  tax  rate. 
These measures were complemented by a second package in September 2025, which introduced 
increased property taxation, a new fee on parcels imported from non-EU countries, a special tax to 
limit profit shifting abroad, and higher taxation of polluting vehicles.  

The  expenditure-to-GDP  ratio  increased  by  2.2  percentage  points  to  43.3%  of  GDP  in  2024  and 
remained  stable  in  2025,  as  persistent  pressures  from  pensions,  interest  costs,  and  priority 
expenditure,  including  defence  and  RRF-related  investment,  were  increasingly  offset  by  tighter 
current spending control, notably through the wage and pension freeze, which was extended into 
2026, and cuts to benefits and bonuses for public administration staff. The full-year impact of the 

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Chapter 5 - Romania 

measures adopted in 2025 should support a further reduction in the government deficit in 2026 to 
6.2% of GDP. 

On 25 October 2024, Romania submitted its national medium-term fiscal-structural plan (MTFSP) 
to the Council and to the Commission. On 26 November 2024, the Commission recommended to 
the Council to endorse Romania’s national medium-term fiscal-structural plan. Based on the plan’s 
policy commitments and macroeconomic assumptions, the net expenditure path put forward in the 
plan  was  consistent  with  the  requirements  set  out  in  Regulation  (EU)  2024/1263,  including  the 
extension  of  the  fiscal  adjustment  period  from  four  to  seven  years.  On  21  January  2025,  the 
Council  adopted  a  recommendation  endorsing  Romania’s  national  medium-term  fiscal-structural 
plan. The plan set out a fiscal adjustment path over seven-years running to 2031. 

Romania  has been  subject  to  an  excessive  deficit  procedure  since  2020  (48).  Following  the  sharp 
deterioration  in  the  fiscal  position  in  2024,  the  Commission  proposed  a  Council  decision  under 
Article 126(8) on 4 June 2025 that Romania had not taken effective action to correct its excessive 
deficit. On 20 June 2025, the Council adopted that decision in line with the Commission proposal 
(Council Decision 10157/25). The Council then revised Romania’s EDP fiscal adjustment path on 8 
July 2025, under which Romania must keep nominal net expenditure growth below 2.8% in 2025, 
2.6% in 2026, 4.6% in 2027, 4.4% in 2028, 4.2% in 2029 and 4.0% in 2030. These equate to an 
annual  adjustment  of  about  2  percentage  points  per  year  in  2025  and  2026  and  about  1 
percentage  point  thereafter.  The  EDP  correction  deadline  is  2030  at  which  point  the  July  2025 
revised recommendation under Article 126(7) TFEU envisages a deficit of 2.8% of GDP. The revised 
recommendation  replaced  the  maximum  growth  rates  of  net  expenditure  established  by  the 
Council Recommendation of 21 January 2025 endorsing Romania’s medium-term fiscal-structural 
plan  as  the  operative  benchmark  for  EDP  monitoring,  while  the  reforms  and  investments 
underpinning  the  MTFSP’s  extended  adjustment  period  remain  in  force  and  continue  to  be 
monitored by the Commission. 

On  20  October  2025,  Romania  submitted  its  report  on  effective  action  in  line  with  the  EDP 
recommendation  under  Article  126(7)  TFEU  of  8  July,  projecting  a  decline  in  the  budget  deficit 
from 9.3% of GDP in 2024 to 8.4% in 2025 and 6.2% in 2026.  

In its 2026 European Semester Spring Package, the Commission assessed the measures taken by 
Romania to address the Council recommendation under the Excessive Deficit Procedure based on 
the  Commission’s  Spring  2026  Economic  Forecast  and  Romania’s  Annual  Progress  Report.  Net 
expenditure  grew  by  0.5%  in  2025,  which  is  below  the  recommended  maximum  growth  rate  of 
2.8%.  Romania  was  therefore  assessed  as  compliant  with  the  recommended  maximum  growth 
rate  of  net  expenditure  in  2025  and  the  excessive  deficit  procedure  was  held  in  abeyance.  As 
highlighted  in  the  Council  recommendation  under  Article  126(7)  TFEU  of  8  July  2025,  Romania 
should strengthen tax administration and the budgetary process to avoid overspending relative to 
plans. 

The  fiscal  stance  was  contractionary  in  2025,  at  2.2%  of  GDP,  driven  mainly  by  net  nationally 
financed  primary  expenditure  (3.5%  of  GDP)  and  nationally  financed  investment  (1.1%  of  GDP), 
while  expenditure  financed  by  RRF  grants  and  other  EU  funds  (-1.3%  of  GDP)  and  other  capital 
expenditure (-0.6% of GDP) were expansionary.  

The general government gross debt ratio increased from 54.8% of GDP in 2024 to 59.3% in 2025. 
In 2024, this increase was driven mainly by a very large primary deficit of 6.8% of GDP. In 2025, 
the primary deficit remained large at 5.0% of GDP and continued to exert strong upward pressure 
on  the  debt  ratio,  although  debt  dynamics  benefited  from  a  favourable  snowball  effect  of  -1.6 
percentage points, as the inflation and, to a lesser extent, growth effects outweighed the interest 
burden. 

(48)  Following  the  expansionary  fiscal  stance  and  the  high  fiscal  deficit  recorded  in  2019  and  previous  years,  Romania 

entered an Excessive Deficit Procedure (EDP) in the spring of 2020. 

87 

 
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Chapter 5 - Romania 

5.3.2.  Medium-term prospects 

The  2026  budget  was  adopted  by  the  Parliament  on  20  March  2026.  The  Commission  projects 
revenues to rise to close to 37% of GDP in 2026, from about 35.4% in 2025, mainly on the back 
of  tax  measures  already  adopted,  including  higher  VAT  and  excise  rates,  the  increase  in  the 
dividend tax, higher property taxation, higher taxes on polluting cars, and the extension of health 
insurance  contributions  to  higher  pensions.  Current  expenditure  growth  is  kept  contained  by  the 
freeze in public wages and pensions. However,  public investment is projected at a record high of 
close to 7% of GDP, largely supported by EU funds and the RRF. The budget also incorporates one-
off aid for pensioners and other welfare support measures, while delaying other payouts in order 
to keep the cash deficit target at 6% of GDP in 2026.  

On 4 May 2026, Romania submitted its 2026 Annual Progress Report, reporting on relevant fiscal 
outturn data and projections, and the implementation of reforms and investments agreed for the 
extension of the fiscal adjustment period to seven years and responding to the main challenges in 
the European Semester country-specific recommendations. The 2026 Progress Report also reflects 
Romania’s biannual reporting on the progress made in delivering on its recovery and resilience plan 
in  accordance  with  Article  27  of  Regulation  (EU)  2021/241.  When  it  comes  to  the  reforms  and 
investments underpinning the extension of the adjustment period, the Commission found that the 
implementation of the key steps of these reforms and investments that were due by 30 April 2026 
seemed to be broadly on track, while noting that further progress is needed in areas such as tax 
administration, VAT compliance, property taxation and expenditure monitoring. 

Based  on  the  Commission’s  2026  Spring  Economic  Forecast,  the  general  government  deficit  is 
projected  to  reach  6.2%  of  GDP  in  2026,  reflecting  the  full-year  effect  of  the  2025  fiscal 
adjustment  packages  and  additional  revenue  measures  in  2026,  alongside  tighter  control  of 
current  expenditure,  although  the  pace  of  deficit  reduction  is  partly  limited  by  high  public 
investment  and  rising  interest  costs.  The  general  government  debt-to-GDP  ratio  is  projected  to 
increase  from  59.3%  in  2025  to  61.6%  in  2026,  driven  by  the  high  primary  deficit  and  high 
interest payments.  

In  spring  2026,  the  Commission  assessed  Romania’s  compliance  risks  with  the  recommended 
maximum  net  expenditure  growth  in  2026,  based  on  outturn  data  for  2024  and  2025,  the 

88 

Table 5.3:Romania - Budgetary developments and projections (as % of GDP unless indicated otherwise)Outturn and forecast 1)20202021202220232024202520261)20271)General government balance-9.3-7.2-6.5-6.6-9.3-7.9-6.2-5.8- Total revenue32.432.834.434.534.035.436.736.1- Total expenditure41.740.040.941.143.343.342.941.9   of which: - Interest expenditure1.41.51.52.02.42.83.03.0p.m.: Tax burden27.027.228.227.528.829.430.430.5Primary balance-7.9-5.7-5.0-4.6-6.8-5.0-3.2-2.8Fiscal stance 2)-1.40.3-2.20.5-0.12.22.50.7Recommended growth in net expenditure (%)2.82.64.6Growth in net expenditure (%)0.51.87.5Government gross debt46.948.648.149.354.859.361.663.4p.m: Real GDP growth (%)-3.65.64.22.30.90.70.12.31) Commission’s Spring 2026 Economic Forecast. 2) The fiscal stance is based on the increase in net expenditure (including that financed by the EU budget) relative to medium-term     potential GDP growth.  A positive (negative) sign indicates a contractionary (expansionary) fiscal stance (in % of GDP). The fiscal      stance profile in 2020-2023 does not include the temporary impact of COVID-19 emergency measures. Source: European Commission. 
 
        
 
 
Convergence Report 2026 - Technical annex 
Chapter 5 - Romania 

Commission’s  Spring  2026  Economic  Forecast  and  information  provided  in  the  Annual  Progress 
Report.  Net  expenditure  in  2026  is  projected  to  increase  by  1.8%,  below  the  ceiling  of  2.6% 
recommended  by  the  Council  for  2026,  and  the  cumulative  net  expenditure  growth  by  2026  is 
projected  to  remain  within  the  recommended  cumulative  ceiling  of  5.5%.  At  the  same  time, 
Romania’s fiscal situation remains fragile as it recorded the highest budgetary deficit in the EU in 
2025  and  faces  significant  implementation  risks  that  require  a  strong  and  persistent  focus  on 
fiscal adjustment in 2026 and subsequent years. 

Based  on  the  Commission  estimates,  the  fiscal 
stance  is  set  to  remain  contractionary  in  2026 
(2.5%  of  GDP),  reflecting  the  ongoing  fiscal 
impulse 
consolidation  effort.  The 
comes  mainly  from  net  nationally  financed 
primary current expenditure (3.2% of GDP). This is 
partly  offset  by  nationally  financed  investment, 
which is projected to be expansionary at -0.7% of 
GDP.  Expenditure  financed  by  RRF  grants  and 
other EU funds is projected to be neutral in 2026.  

tightening 

Debt  sustainability  risks  appear  high  over  the 
medium  term.  Government  debt  is  projected  to 
increase  rapidly  from  around  59%  of  GDP  in 
2025 to around 90% of GDP in 2036. This projection assumes that the structural primary deficit 
decreases from 4.7% of GDP in 2025 to 2.3% of GDP in 2026 and remains at that level (excluding 
changes in the cost of ageing) over the projection period (49). 

The sensitivity to possible macro-fiscal shocks contributes to this assessment. In particular, if the 
interest-rate growth differential deteriorates by 1.0 percentage point compared with the baseline, 
the projected debt ratio in 2036 would be around 7 percentage points higher than in the baseline. 

Finally, several additional risk factors need to be considered in the assessment. On the one hand, 
risk-increasing factors are related to (i) the share of debt held by non-residents, (ii) the currency 
denomination of debt, (iii) some exposure to non-performing loans and (iv) the country’s negative 
net international investment  position, even if the latter is low if non-defaultable instruments are 
excluded.  On  the  other  hand,  risk-mitigating  factors  include  (i)  the  low  share  of  short-term  debt 
and (ii) low external and private debt. 

Difficulties  in  implementing  elements  of  the  national  fiscal  framework  remain.  The  Romanian 
Fiscal Council has a relatively broad mandate, including the monitoring of fiscal rules, assessment 
of  macroeconomic  and  budgetary  forecasts,  and  costings  of  the  main  discretionary  revenues. 
However,  it  has  struggled  with  severe  recruitment  problems  (less  than  half  of  the  20  available 
positions  at  the  secretariat  have  been  filled)  and  poor  policy  dialogue  with  the  government.   
Concerning  the  management  of  public  investment,  weaknesses  remain  regarding  (i)  alignment 
between the long-term strategy (Romania 2030) and sectoral strategies and EU-financed priorities 
which  represent  a  significant  part  of  public  investment,  (ii)  mechanisms  to  support  funding 
availability  beyond  the  annual  budget  year  and  (iii)  ex  post  reviews  on  the  effectiveness  and 
efficiency  of  investment  projects  are  rare  and  not  systematically  integrated  into  future  planning 
(50). The amended Budgetary Framework Directive (2011/85/EU), part of the Economic Governance 
Review of 2024, may affect some aspects of the Romanian fiscal framework, for example because 
it extends the independence safeguards for independent fiscal institutions to all EU Member States 
and assigns some tasks to these institutions. 

(49)  This is in line with the no-fiscal-policy-change assumption as from 2027 and implies that the adjustment that Romania 
commits  to  in  its  medium-term  plan  beyond  2026  is  not  taken  into  account  in  the  projection.  For  details  on  the 
methodology,  see  European  Commission  (2026),  Debt  Sustainability  Monitor  2025,  Institutional  Paper  332,  February 
2026. 

(50)  See European Commission’s 2025 Country Report on Romania. 

89 

-3-2-10123452024202520262027Expenditure financed by RRF grants and EU funds (e)Other capital expenditure (d)Nationally financed investment (c)Net nationally financed  primary current expenditure (b)Fiscal stance (f=a+e)Net nationally financed  primary expenditure (a=b+c+d)ExpansionaryContractionarySource: Commission's Spring 2026 Economic Forecast.Graph 5.4: Romania -Fiscal stance and its components(percent of GDP) 
        
Convergence Report 2026 - Technical annex 
Chapter 5 - Romania 

5.4.  EXCHANGE RATE STABILITY 

The Romanian leu does not participate in ERM II. Romania has been operating a managed floating 
exchange rate regime since 1991 with no preannounced path for the exchange rate (51). De facto, 
the exchange rate regime moved gradually from a strongly managed float – including through the 
use of administrative measures until 1997 – to a more flexible one. In 2005, Romania shifted to a 
direct inflation targeting framework combined with a ‘crawl-like’ exchange rate arrangement that 
allows foreign exchange market interventions by the central bank. Exchange rate stability has been 
used  by  the  BNR  as  an  important  mechanism  to  ensure  financial  stability  and  anchor  inflation 
expectations. 

Romania’s  exchange  rate  was  relatively  stable  on  average  at  4.98  RON/EUR  between  January 
2024 and April 2025. In May 2025, the leu weakened against the euro by nearly 2% compared to 
the  previous  month,  reaching  5  RON  per  euro  for  the  first  time  in  history.  This  depreciation 
reflected capital outflow pressures amid heightened electoral uncertainty. Volatility of the leu was 
moderate  in  the  second  half  of  2025,  with  the  RON/EUR  reaching  5.09  in  December  2025. 
Following the vote of no confidence in the Romanian government in early-May, the leu weakened 
on  average  by  around  3%  compared  with  its  value  at  the  end  of  April.  In  May  2026,  the  leu’s 
exchange rate against the euro averaged 5.23. 

The gross international reserves held by the BNR declined from around EUR 74 billion in the third 
quarter of  2024  to  a  low  of  around  EUR  68  billion  in  the  second  quarter  of  2025.  The  reserves 
recovered and continued to increase throughout the second half of 2025 to a high of around EUR 
77 billion at the end of 2025, reaching close to 20% of GDP. Over this period, movements in the 
level  of  international  reserves  were  influenced  by  changes  in  the  foreign  exchange  reserve 
requirements  of  credit  institutions,  sovereign  debt  management  decisions,  such  as  euro-  and  US 
dollar-denominated government bond issuances and financing payments under the EU’s Recovery 
and Resilience Facility. The reserves continued to increase in the first three months of 2026,  but 
subsided  again  during  the  recent  political  instability,  standing  at  around  EUR  77  billion  in  May 
2026. 

Short-term  interest  rate  spreads  vis-à-vis  the  euro  area  increased  by  around  300  basis  points 
between August 2024 and June 2025, reaching a high of around  515 basis points in June 2025. 
This increase in the three-month interest rate spread was driven by the pause in the BNR’s policy 
easing as of mid-2024 compared to the monetary policy easing cycle in the euro area. In Romania, 
the key policy rate was reduced from 7% in June 2024 to 6.5% by August 2024, and has remained 
unchanged since then, whereas the ECB’s key interest rate decreased gradually from 3.75% to 2% 
over the period between June 2024 and June 2025. Moreover, the rise in money market interest 
rates in Romania during the period of market stress in late spring 2025 also stems from the BNR’s 

(51)  On  1  July  2005  the  Romanian  Leu  (ROL)  was  replaced  by  the  new  leu  (RON),  with  a  conversion  factor  of  1  RON  = 
10,000 ROL. For convenience, however, the text of this report consistently refers to leu, meaning ROL before and RON 
after the conversion. 

90 

4.74.84.95.05.15.25.3202020212022202320242025Graph 5.5: Romania -RON/EUR exchange rate(monthly averages)Source: ECB.0100200300400500600700800202020212022202320242025Graph 5.6: Romania -3-M Robor spread to 3-M Euribor(basis points, monthly values)Source: National Bank of Romania, Eurostat and Refinitv Workspace. 
 
 
            
            
Convergence Report 2026 - Technical annex 
Chapter 5 - Romania 

deployment of liquidity management tools to absorb excess liquidity in the money market, leading 
to  increased  market  interest  rates,  and  to  mitigate  the  sell-off  pressures  on  the  Romanian 
currency. Subsequently, the three-month spread decreased steadily during the second half of 2025 
and in early 2026, reflecting improved liquidity conditions in Romania’s money market. The spread 
reached 362 basis points by May 2026.  

5.5.  LONG-TERM INTEREST RATES 

The  long-term  interest  rates  in  Romania  used  for  the  purpose  of  the  convergence  examination 
reflect secondary market yields on a single government benchmark bond with a residual maturity 
of around 9 years. 

The Romanian 12-month moving average long-term interest rate relevant for the assessment of 
the  Treaty  criterion  was  0.9  percentage  point  above  the  reference  value  at  the  time  of  the  last 
convergence  assessment  of  Romania  in  2024.  In  May  2026,  the  reference  value,  which  is 
calculated  as  the  average  of  long-term  interest  rates  in  Cyprus,  France  and  Denmark  plus  2 
percentage points, stood at 5.1%. In that month, the 12-month moving average of the yield on the 
Romanian benchmark bond was at 6.7%, i.e. 1.6 percentage points above the reference value. 

The long-term interest rate in Romania increased gradually throughout 2024, rising from 6.1% in 
January 2024 to 7.1% in January 2025, which was close to levels seen in 2023. It then decreased 
slightly in the first three months of 2025 before increasing in April back to the levels recorded at 
the beginning of the year and further to 7.4% in June. This increase largely reflected the increased 
market risk aversion in the context of a widening fiscal deficit and investors’ concerns about fiscal 
consolidation prospects. The 10-year interest rate for the German government bond, which is the 
benchmark  security  in  European  financial  markets,  rose  by  0.3  percentage  point  between  the 
beginning  of  2024  and  June  2025.  Romania’s  long-term  interest  rate  decreased  steadily  during 
the  second  half  of  2025,  in  part  reflecting  investors’  lower  risk  aversion  following  the 
government’s  adoption  of  fiscal  consolidation  measures.  The  long-term  interest  rate  of  Romania 
was  broadly  stable  during  the  first  five  months  of  2026,  although  at  6.2%  in  May  2026,  it 
remained  at  a  relatively  high  level.  The  long-term  spread  versus  the  German  benchmark  bond 
stood at 312 basis points in May 2026, down from 485 basis points in June 2025. 

5.6.  ADDITIONAL FACTORS 

The  Treaty  (Article  140  TFEU)  calls  for  an  examination  of  other  factors  relevant  to  economic 
integration and convergence  to be taken into account in the assessment. The assessment of the 
additional  factors  –  including  balance  of  payments  developments,  product,  labour  and  financial 
market integration – gives an important indication of a Member State's ability to integrate into the 
euro area without difficulties. 

91 

0246810Jan-20Jan-21Jan-22Jan-23Jan-24Jan-25Jan-26RomaniaReference valueGraph 5.7: Romania -Long-term interest rate criterion(percent, 12-month moving average)Source: European Commission.-20246810202020212022202320242025RomaniaGermanyGraph 5.8: Romania -Long-term interest rates(percent, monthly values)Source: Eurostat. 
 
          
         
Convergence Report 2026 - Technical annex 
Chapter 5 - Romania 

In November 2025, the Commission published its 15th Alert Mechanism Report (AMR 2026) under 
the  Macroeconomic  Imbalance  Procedure  (MIP  -  see  also  Box  1.6),  which  concluded  that  an  In-
Depth  Review  (IDR)  was  warranted  for  Romania.  In  May  2026,  the  Commission  published  an  In-
Depth  Review  for  Romania.  Taking  into  account  the  assessment  in  the  In-Depth  Review,  the 
Commission, in its Communication ‘European Semester – 2026 Spring Package’ (52), considers that 
Romania  continues to  experience  excessive  macroeconomic  imbalances.  The  IDR  highlighted  that 
Romania  continues  to  face  vulnerabilities  related  to  large  fiscal  and  external  deficits,  despite 
improvements  since  the  second  half  of  2025.  At  the  same  time,  wage  and  cost  pressures  have 
moderated, supporting cost competitiveness going forward. Romania’s high government deficit has 
been  a  key  driver  of  the  large  external  deficits  and  borrowing  needs.  The  fiscal  consolidation 
process initiated in 2025 helps reducing Romania’s vulnerabilities and should continue.  

According  to  the  Commission’s  analysis,  Romania’s fiscal  and external  deficits  declined  last  year 
but  remain  large.  Comprehensive  fiscal  measures, in  particular the  freeze  in  public  sector wages 
and  pensions  and  the  increase  in  VAT  and  other  taxes,  have  put  the  government  deficit  on  a 
downward  trajectory  and  allowed  Romania  to  regain  investor  confidence.  Private  consumption 
cooled off, stifling imports and reducing the current account deficit, which was also financed by a 
more favourable financing  mix. Real wage growth was considerably below productivity growth in 
2025  while  the  planned  minimum  wage  adjustment  in  July  2026  seems  to  support  efforts  to 
improve cost competitiveness. Advances in transport infrastructure projects, accession to Schengen 
and  additional  structural  reforms  under  the  RRP  have  supported  exports  and  external 
competitiveness. Still, the general government deficit remains one of the highest in the EU, keeping 
borrowing  costs  for  the  sovereign  elevated  and  Romania’s  sovereign  credit  rating  just  at 
investment  grade.  The  bold  fiscal  consolidation  package  adopted  in  the  summer  of  2025  was  a 
first  and  important  step  in  addressing  Romania’s  vulnerabilities,  but  the  current  policy  stance 
needs  to  be  maintained.  In  addition,  structural  reforms  need  to  be  continued,  including  via 
implementation of Romania’s RRP, in order to improve competitiveness and potential growth. 

Romania’s recovery and resilience plan (RRP) includes measures to address a series of structural 
challenges,  in  synergy  with  other  EU  funds,  including  cohesion  policy  funds,  to  boost  its 
competitiveness  and  stimulate  sustainable  growth  and  reduce  the  country’s  territorial  and  social 
disparities.  The  revised  RRF  funding  envelope  provides  Romania  with  EUR  21.4  billion  over  the 
2021-2026 period. Romania’s revised plan has a reduced loan envelope (from EUR 14.9 billion to 
EUR  7.8  billion),  due  to  significant  delay  in  implementation  and  size  of  investments  at  risk.  
Romania has submitted four payment requests, resulting in an overall disbursement of about EUR 
13  billion,  slightly  more  than  60%  of  the  total  envelope,  until  end-June  2026.  Key  reforms  in 
Romania’s  RRP  include  those  in  the  areas  of  pensions,  decarbonisation/coal  and  lignite  energy 
production phase out, state-owned enterprises, tax administration and tax reform, and social and 
healthcare. 

Romania still faces a significant delay and needs to speed up implementation of investments and 
reforms. This includes large scale investments in transport and energy, but also important reforms 
in public finances and wages and the energy sector. Given the hard deadline of 31 August 2026, 
without further acceleration, risk of partial decommitments remains non-negligeable.    

In  addition,  cohesion  policy  provides  Romania  with  EUR 33.7  billion for  the  2021-2027  period. 
Cohesion  policy  financing  aims  to  further  support  Romania’s  competitiveness  and  upward  social 
convergence,  including  research,  innovation,  and  SMEs  competitiveness,  the  green  and  just 
transition, the modernisation of labour market institutions, the development of skills and increased 
quality and inclusiveness of education and training, as well as the reduction of poverty. Romania 
has  made  progress  in  implementing  cohesion  policy  but  challenges  remain  and  significant 
territorial  disparities  in  investment  and  employment  persist  between  the  capital  region  and  the 
other regions, as well as between urban and non-urban areas. 

(52)  COM(2026) 200 final, 3.6.2026. 

92 

 
 
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Chapter 5 - Romania 

5.6.1.  Developments in the balance of payments 

Romania's external balance (i.e. the combined current and capital account) deteriorated from close 
to  -4.0%  of  GDP  in  2023  to  -6.7%  in  2024,  before  improving  slightly  to  -6.0%  in  2025.  The 
significant  worsening  of  the  external  balance  in  2024  was  driven  by  a  combined  increase  in  the 
current  account  deficit  by  about  1.5  percentage  points  of  GDP,  while  the  surplus  of  the  capital 
account  also  decreased  by  more  than  1  percentage  point  of  GDP.  In  2025,  the  external  balance 
improved mainly due to an increase in the capital account surplus  thanks to better absorption of 
EU funds, while the current account deficit shrank marginally. 

The  widening  of  the  current  account  deficit  to  8.2%  of  GDP  in  2024  was  due  primarily  to  a 
deterioration  in  the  balance  of  trade  of  goods  and  services,  as  exports  slowed  down  markedly 
because of weak external demand and unfavourable cost developments in Romania. At the same 
time,  the  negative  primary  income  balance  remained  broadly  flat  while  the  surplus  in  the 
secondary  income  balance  declined  significantly  due  to  higher remittances  by  foreign  workers in 
Romania. The large current account deficit started to decline in the second half of 2025 in parallel 
with the strong deceleration in private consumption. It receded to around 7.9% of GDP until end-
2025  amid  fiscal  consolidation,  weaker  domestic  demand  and  robust  exports.  The  trade  deficit 
declined both in nominal terms and by 0.5 percentage point of GDP. At the same time, the negative 
primary income balance widened slightly due to higher outflows of FDI income and higher interest 
paid on external public debt.  

After deteriorating  in  2024, the  financing  mix  of  the  external  deficit  became  more  favourable  in 
2025.  In  2025,  about  half  of  the  current  account  financing  needs  were  covered  by  non-debt 
creating instruments, such as EU funds and net FDI, after this share had  dropped to less than a 
third in 2024. Net FDI increased by about 60% from 1.4% of GDP in 2024 to 2.1% of GDP in 2025. 
Net portfolio inflows remained large at about 3.5% of GDP in both 2024 and 2025, as the large 
government deficit was increasingly financed from external sources.  

Foreign reserves increased by close to EUR 5 billion to a record high EUR 77 billion or 20% of GDP 
by end-2025, despite large fluctuations during the year triggered by exchange  rate interventions 

93 

Table 5.4:Romania - Balance of payments(percentage of GDP)202020212022202320242025Current account-5.1-7.2-9.6-6.7-8.2-7.9of which: Balance of trade in goods-8.6-9.6-11.4-9.0-9.3-8.6               Balance of trade in services4.23.94.54.13.33.3               Primary income balance -1.1-1.8-3.0-2.5-2.4-2.6               Secondary income balance0.40.20.40.70.20.0Capital account1.91.82.12.81.51.9External balance 1)-3.2-5.4-7.4-3.9-6.7-6.0Financial account-3.5-6.0-6.6-3.1-5.6-5.9of which: Direct investment-1.3-3.7-3.3-2.0-1.3-2.0               Portfolio investment-6.0-1.4-1.7-4.3-3.5-3.5               Other investment 2)1.4-1.8-3.9-1.0-1.0-1.6               Change in reserves2.50.92.34.10.21.2Financial account without reserves-6.0-6.9-9.0-7.2-5.9-7.1Errors and omissions-0.3-0.50.80.81.10.1Gross capital formation24.326.427.126.225.025.9Gross saving19.219.117.419.416.617.9Net international investment position-48.7-47.3-42.6-41.6-41.3-45.11) The combined current and capital account.2) Including financial derivatives.Sources: Eurostat, European Commission calculations, the National Bank of Romania. 
 
        
 
 
Convergence Report 2026 - Technical annex 
Chapter 5 - Romania 

following  political  instability  at  the  time  of  presidential  elections  in  May  2025  and  weak  fiscal 
fundamentals.  Romania's  net  international  investment  position  (NIIP)  increased  by  almost  4 
percentage points to about -45% of GDP at end-2025, with valuation effects and strong growth in 
nominal  GDP  partly  offsetting  the  effect  of  large  deficits  of  the  external  balance.  The  NIIP 
excluding non-defaultable instruments (NENDI), which takes into account Romania’s large stock of 
net FDI, bolstering Romania’s economic convergence with the euro area, remained low at  about -
12% of GDP in 2025. 

cost 

external 

Romania’s 
competitiveness 
continued  to  deteriorate  in  2024  following  the 
pre-electoral  robust  wage  growth.  The  freeze  in 
public  sector  wages  and  overall  moderation  of 
wage  growth  in  a  softer  labour  market  curbed 
this  negative  trend  in  2025.  The  appreciation  of 
the  HICP-based  REER  continued  in  2024  and 
2025,  by  2%  and  3%  respectively,  mainly  as 
inflation in Romania was significantly above that 
of the euro area. The ULC-deflated real effective 
exchange 
large 
appreciation by around 10% in 2024 due to wage 
dynamics  and  negative 
labour  productivity 
growth,  but  remained  broadly  flat  in  2025  when 
wage growth moderated. At the same time, Romania’s export market share (measured at current 
prices) decreased in 2024. 

recorded  a 

(REER), 

rate 

According  to  the  Commission’s  Spring  2026  Economic  Forecast,  the  current  account  deficit  is 
expected  to  decline  steadily,  subject  to  continued  firm  fiscal  consolidation  and  moderation  of 
domestic demand, until reaching a still relatively high level  of 6.4% of GDP in 2027. At the same 
time,  an  accelerated  implementation  of  RRP  investments  upon  completion  of  the  plan,  the 
continuation  of  the  ascending  trend  of  net  FDI  inflows  and  the  expected  decline  in  the  current 
account deficit are likely to lead to a further improvement of the financing mix in 2026. 

5.6.2.  Market integration 

Romania’s economy is well-integrated with the euro area through trade and investment linkages. 
The degree of trade openness (see Table 5.5 for a definition) decreased somewhat in 2024, from  
around 44% of GDP in 2023 to 40% of GDP in 2025. This reflected weak domestic demand from 
the  main  trading  partners,  declining  industrial  output  and  a  significant  deceleration  in  domestic 
demand  affecting  imports.  In  2025,  Romania's  main  trading  partners  within  the  euro  area  were 
Germany,  Italy,  France  and  Bulgaria,  while  outside  the  euro  area  Romania  mainly  traded  with 
Hungary, Poland and Türkiye. Trade with the euro area also decreased from around 26% of GDP in 
2023 to 23% of GDP in 2025. 

Since it joined the European  Union, Romania has attracted  substantial amounts of FDI. The total 
stock  of  inward  FDI  reached  EUR  125  billion  or 35%  of  GDP  in  2024,  up  by  6%  from  2023  (53). 
About 37% of the total was invested in industry, mainly in manufacturing and around 17% in both 
construction and real estate transactions and in trade. More than 86% of the FDI stock originated 
in the EU, primarily from euro area Member States, such as the Netherlands, Germany, Austria and 
France.   

Romania under-performs in international rankings of  competitiveness relative to many euro area 
Member  States,  and  its  position  has  slightly  worsened  in  the  past  two  years,  as  partly  reflected 
also in the subdued economic growth. Romania has moved down from the 48th place in 2023 to 
the 50th in 2024 and the 49th in 2025 from a total of 64 surveyed economies in the IMD’s World 
Competitiveness  Index.  A  patchy  and  unpredictable  legal,  regulatory  and  tax  framework,  an 

(53)  National Bank of Romania (2025), report on Foreign Direct Investment in Romania in 2024. 

94 

9095100105110115120125130202020212022202320242025Graph 5.9: Romania -Effective exchange ratesNEERREER, HICP-deflatedREER, ULC-deflated(vs 36 trading partners; monthly averages;index numbers, 2020 = 100)Source: European Commission. 
       
Convergence Report 2026 - Technical annex 
Chapter 5 - Romania 

inefficient public procurement, poor infrastructure and weak public administration capacity, and, at 
times,  ineffective  corporate  governance  of  state-owned  enterprises,  are  some  of  the  main 
obstacles to  investment  and  productivity  growth.  According  to  the  World Bank's  2024  Worldwide 
Governance Indicators, Romania ranks below the average of the euro area Member States for the 
six dimensions covered by the database. For two dimensions, voice and accountability and control 
of  corruption,  it  ranks  below  the  average  of  the  five  euro  area  Member  States  with  the  lowest 
scores (54).  However, as documented hereafter, some  progress has been made since  2024 in the 
area  of  corruption.  According  to  the  2026  Country  Report,  Romania  has  a  formal  framework  to 
develop  quality  legislation,  but  there  is  scope  for  further  improvement.  Shortcomings  persist  in 
practice  for  public  consultations,  which  remain  often  formalistic.  Although  the  perception  of 
corruption  when  doing  business  in  Romania  remains  very  high, the  reported  level  of  experienced 
corruption  is  only  slightly  above  the  EU  average.  Romania  has  made  significant  progress  in 
strengthening its integrity framework. Furthermore, the authorities maintain a positive track record 
in combating corruption, including in high-level corruption cases. The justice system performs well 
in  terms  of  efficiency  while  the  quality  of  the  justice  system  is  average  (55).  On  the  other  hand, 
according to the 2025 Single Market Scoreboard, Romania's transposition deficit of EU Directives 
went up again from 0.2% in 2023, to 0.8% in 2024 and 1% in 2025, very close to the EU average, 
but  above  the  target  (0.5%)  proposed  by  the  European  Commission  in  the  Single  Market  Act 
(2011). 

As  part  of  the  2026  Country  Report,  the 
Commission  has 
identified  several  obstacles 
undermining  Romania’s  business  environment 
and  competitiveness,  among  which  labour  and 
skills  shortages  and  mismatches,  over-regulation 
and volatile tax and regulatory environment, weak 
administrative 
insufficient 
competition  in  public  procurement,  still  limited 
access  to  finance  for  SMEs,  gaps  in  transport 
infrastructure and low levels of digitalisation and 
innovation. 

capacity 

and 

In  its  June  2025  follow-up  report,  Moneyval 
concluded  that  Romania  has  taken  several  steps  to  enhance  its  measures  to  counter  money 
laundering, terrorist financing and the financing of  proliferation of weapons of  mass  destruction, 

(54)  A Member State is considered to have a ‘low’ (‘high’) ranking compared with the average five euro area Member States 
with  the  lowest  scores  for  each  indicator  if its  score  is  at  least  0.3  percentage  point  lower  (higher)  than  that  of the 
average of this group of five euro area Member States. 

(55)  European  Commission  (2026),  2026  Country  Report  on  Romania,  pp.  73-78.  See  also  Annual  Rule  of  Law  Report, 

country chapter on Romania.  

95 

Table 5.5:Romania - Market integration202020212022202320242025Trade openness 1) (%)41.045.149.343.940.539.7Trade with euro area in goods & services 2)+3) (%)24.426.528.125.723.523.0IMD World Competitiveness Ranking 4)514851485049Internal Market Transposition Deficit 5) (%)1.12.90.30.20.81.0Real house price index 6)111.0110.7104.298.797.595.8 1) (Imports + Exports of goods and services / (2 x GDP at current market prices)) x 100 (Foreign Trade Statistics, Balance of Payments). 2) (Imports + Exports of goods with EA-21 / (2 x GDP at current market prices)) x 100 (Foreign Trade Statistics). 3) Trade in services with EA-21 (average credit and debit in % of GDP at current prices) (Balance of Payments). 4) International Institute for Management Development (IMD). 5) Percentage of internal market directives not yet communicated as having been transposed, relative to the total. 6) Deflated house price index (2015=100) (Eurostat). Sources: Eurostat, World Bank, International Institute for Management Development, European Commission calculations.0.00.61.2Voice and accountabilityPolitical stability andabsence ofviolence/terrorismGovernmenteffectivenessRegulatory qualityRule of lawControl of corruptionRomaniaEuro area average five lowestEuro area averageGraph 5.10: Romania -World Bank's 2024 Worldwide Governance IndicatorsNote: Estimate of governance ranges from -2.5 (weak) to 2.5 (strong). Source: World Bank. 
 
         
 
 
 
 
   
Convergence Report 2026 - Technical annex 
Chapter 5 - Romania 

including  regarding  targeted  financial  sanctions,  but  still  needs  to  address  several  moderate 
shortcomings. 

Romania has completed the transposition of the 4th and the 5th Anti-Money Laundering Directive. 
As regards the conformity of the transposition, the Commission sent two letters of formal notice 
concerning the transposition of different provisions related to beneficial ownership registers. One 
infringement procedure is still pending.  

The Romanian labour market continues to face significant challenges. Aging population, continued 
emigration and low intra-country labour mobility are reducing the labour supply, with some support 
from  increasing  inflows  of  foreign  workers.  Employment  and  activity  rates  have  risen  in  recent 
years but started receding again in 2025  due to the economic slowdown. They remain below EU 
averages,  not  least  because  of  a  high  number  of  people  engaged  in  subsistence  agriculture  or 
working cross border. Labour and skills shortages and job mismatches remain a pressing challenge 
for  the  labour  market.  High  minimum  wage  increases  above  inflation  and  productivity  growth 
which  fuelled  overall  wage  growth  over  the  past  three  years,  with  adverse  consequences  for 
inflation persistence and external competitiveness, have moderated in 2026. Under the Romanian 
recovery and resilience plan, a new mechanism for setting the minimum wage on objective criteria, 
consistent with job creation and competitiveness, was adopted. 

The financial sector in Romania is smaller and  less developed than in the euro area.  The size of 
assets managed by the financial sector stood at 94% of GDP in 2024, which is much less than in 
the euro area (707% of GDP) and less than the average of the five euro area Member States with 
the  smallest  financial  sectors.  The  size  of  the  financial  sector  has  remained  broadly  unchanged 
since  2020  while  it  has  decreased  in  the  euro  area.  Banking  dominates  the  Romanian  financial 
sector and made up 54% of the financial sector’s assets in 2024. The central bank is the second 
largest holder of financial assets with a share of 22% in 2024. These shares of financial assets 
held by banks and the central bank are larger than in the euro area but relatively similar to those 
of the five euro area  Member States with the smallest financial sectors.  They mostly reflect the 
relative  underdevelopment  of  non-bank  financial  intermediaries  and  investment  funds  compared 
to the euro area. Relative to GDP, the insurance and the pension-fund sector in Romania is around 

96 

Table 5.6:Romania - Allocation of assets by financial sub-sectorRatio to GDP (%)ROEAEA 5 smallest202020242020202420202024Financial corporations (total)9694806707199180Central bank212077516144Monetary financial institutions54513082759393Other financial intermediaries781951772015Non-MMF investment funds1)4312512546Insurance co. and Pension Funds1011102802223Share of total (%)ROEAEA 5 smallest202020242020202420202024Central bank22221073024Monetary financial institutions565438394752Other financial intermediaries892425108Non-MMF investment funds43151823Insurance co. and Pension Funds1012131111131) MMF stands for money market funds.Source: Eurostat. 
 
      
 
 
Convergence Report 2026 - Technical annex 
Chapter 5 - Romania 

seven-times smaller than in the euro area. However, the sector’s share of the total financial sector 
assets stood at 12% in 2024, which is close to that of the euro area. 

As to the financing of the economy, outstanding liabilities are much lower in Romania than in the 
euro area (207% of GDP in  2022 vis-à-vis 722% of GDP in the euro area) and than in the euro 
area  Member  States  with  the  smallest  financing  needs.  Like  in  the  euro  area,  loans  are  the 
dominant source of funding. They amounted to 27% of total liabilities in 2024. Trade credits and 
advances play an important role in the financing of the economy (17% of outstanding liabilities in 
2024).  Romania  has  less  developed  bond  and  equity  markets  than  the  euro  area  and  market 
financing  (debt  securities  and  listed  shares)  is  much  less  developed.  Financing  through  debt 
securities by corporations is practically inexistent, while equity markets are very small compared to 
those of the euro area. Equity and corporate debt securities markets represented 7% of liabilities 
in  2024  (15%  of  GDP).  This  compares  to  19%  of  liabilities  in  the  euro  area  (73%  of  GDP  for 
private-sector debt and 64% of GDP for listed stocks). However, Romania is still comparable to the 
five euro area Member States with the smallest financial needs. The government bond market is 
smaller than in the euro area, reflecting the smaller debt-to-GDP ratio in the country, but similar to 
that of five euro area Member States with the smallest financial needs.  

97 

Table 5.7:Romania - Financing of the economy1)Ratio to GDP (%)ROEAEA 5 smallest202020242020202420202024Liabilities (total)218207813722325305Loans605525121510392Non-financial co. debt securities00151232Financial co. debt securities02686135Government debt securities444394724943Listed shares9137164812Unlisted shares29201961876554Other equity353882765864Trade credits and advances413636363633Share of total (%)ROEAEA 5 smallest202020242020202420202024Loans282731303230Non-financial co. debt securities002211Financial co. debt securities018812Government debt securities202112101514Listed shares469924Unlisted shares131024262019Other equity161810111720Trade credits and advances19174510111) The table focuses on the financing needs of a country and how these are met by the financial system. The table is constructed    from the liabilities of all economic sectors, but only considers loans, debt securities, equity and trade credits. The sum of liabilities    in the table only reflects the total for the liabilities considered.Source: Eurostat. 
 
       
 
 
 
Convergence Report 2026 - Technical annex 
Chapter 5 - Romania 

Romania’s  banking  sector  is  well  integrated  with 
the  euro  area’s  financial  sector,  in  particular 
through  a  high  level  of  foreign  ownership  in  its 
banking  system.  Foreign-owned  banks, 
the 
majority of which are subsidiaries of parent banks 
based in the euro area, had  a share of assets in 
the total held by the Romanian banking sector of 
63%  in  2024,  well  above  the  euro  area  average 
of  nearly  18%.  Bank  concentration,  as  measured 
by  the  market  share  of  the  five  largest  credit 
institutions  in  total  assets,  has  increased  by  3 
percentage points  since 2020, and stood at 65% 
in  2024.  This  is  around  15  percentage  points 
above the euro area average in 2024. 

98 

020406080RO, 2020RO, 2024EA, 2020EA, 2024Concentration in the banking sector (CR5 ratio)Share of foreign institutions as % of total assets(in percent, weighted averages)Source: ECB, Structural financial indicators. Graph 5.11: Romania -Foreign ownership and concentration in the banking sector 
        
6.  SWEDEN 

6.1.  LEGAL COMPATIBILITY 

6.1.1.  Introduction 

The Swedish Central Bank (Riksbank) is governed by the Law on the Sveriges Riksbank (56) which 
entered  into  force  on  1  January  2023  (the  ‘Riksbank  Act’)  and  repealed  the  Riksbank  Act  from 
1988,  as  amended.  The  Riksbank  Act  has  been  amended  (57)  since  the  Commission’s  2024 
Convergence  Report.  However,  incompatibilities  and  imperfections  still  remain.  Therefore,  the 
comments provided in the 2024 Convergence Report remain relevant and are  largely repeated in 
this year’s assessment. The  Law on Exchange Rate Policy (58) and the Instrument of Government 
(59)  which  form  part  of  the  Swedish  Constitution,  are  also  relevant  for  the  assessment  of  the 
Riksbank, and have not been amended since 2024. 

6.1.2.  Central bank independence 

Pursuant to Article 6 of Chapter 8 of the Riksbank Act, the Swedish Parliament adopts the balance 
sheet and the profit and loss account and approves the General Council’s decision on the allocation 
of the central bank’s profit. The Swedish Parliament may refuse to approve a decision only if it is 
contrary  to  Chapter  8  of  the  Riksbank  Act.  If  approval  is  refused,  the  Council  shall  take  a  new 
decision. This practice impinges on the financial independence of the Riksbank and is incompatible 
with  Article  130  TFEU.  The  Parliament  must  not  be  involved  in  the  relevant  decision-making 
process of the Riksbank.      

Article  3  of  Chapter  2  of  the  Riksbank  Act  provides  that  the  central  bank  shall  decide  on  the 
specification  of  the  price  stability  target,  after  approval  by  the  Swedish  Parliament.  The 
Parliament’s  right  to  approve  any  decision  taken  by  the  central  bank  on  the  design  of  the  price 
stability objective is incompatible with the prohibition on giving instructions to the central bank as 
set out in Article 130 TFEU and Article 7 of the ESCB/ECB Statute. 

Article 1(2) of Chapter 6 of the Riksbank Act states that the Riksbank shall base its international 
activities on the overall positions of the Government and the Riksdag in various policy areas. The 
right of third parties to influence the Riksbank’s decisions is not compatible with Article 130 TFEU 
and Article 7 of the ESCB/ECB Statute.  

Article  3  of  Chapter  10  states  that  if  the  foreign  reserves  have  been  called  upon  for  financial 
stability measures, the Riksbank may  decide on borrowing in foreign  currency  for the purpose of 
restoring the reserve. These provisions may affect the financial independence of the Riksbank, as 
the  Riksbank  should  be  able  to  increase  its  foreign  reserves  whenever  necessary  in  pursuing  its 
foreign exchange, monetary and liquidity policies.  

The  Commission  noted  in  the  2024  Convergence  Report  the  provisions  on  restauration  of  equity 
introduced  in  the  Riksbank  Act,  which  have  been  further  amended  since  that  date.  According  to 
Article 15 of Chapter 8, if the sum of the equity and unrealised gains on revaluation accounts, with 
the exception of the account relating to gold, is less than one third of the target level, the Riksbank 
may submit a request to the Swedish Parliament to restore equity. The request shall relate to an 
amount  which  means  that  the  sum  of  the  equity  and  unrealised  gains  in  revaluation  accounts, 
except  for  the  account  relating  to  gold,  is  restored  to  a  level  corresponding  to  the  basic  level  of 
equity. If this is necessary to ensure the Riksbank's ability to provide long-term self-financing, the 
proposal may refer to an amount that means that the sum of the equity and unrealised gains in 
revaluation accounts, excluding the account relating to gold, amounts to an amount corresponding 
to the target level. 

(56)  SFS 2022:1568. 
(57)  SFS 2023:214, SFS 2024:371, SFS 2024:1372, SFS 2025:1024. 
(58)  SFS  1998: 1404. 
(59)  SFS 1974: 152. 

99 

 
Convergence Report 2026 - Technical annex 
Chapter 6 - Sweden 

These  provisions  aim  to  safeguard  the  financial  independence  of  the  central  bank  which  also 
implies  that  Riksbank  should  always  be  sufficiently  capitalised  in  order  to  avoid  any  situations 
which may negatively impact the central bank’s ability to perform its ESCB-related tasks but also 
its national tasks. 

6.1.3.  Prohibition of monetary financing and privileged access 

Article  6  of  Chapter  1  of  the  Riksbank  Act  provides  that  the  Riksbank  may  not  extend  credit  or 
purchase  debt  instruments  directly  from:  1)  the  State,  municipalities,  regions  or  associations  of 
municipalities  or  legal  persons  over  which  the  State,  regions,  municipalities,  or  associations  of 
municipalities, separately or jointly, have a direct or indirect legal determination; or 2) institutions, 
bodies, offices or agencies of the European Union, which are not central banks. Article 6 of Chapter 
1  of  the  Riksbank  Act  does  not  enumerate  the  entities  covered  by  the  prohibition  of  monetary 
financing correctly, therefore, it is incompatible with the wording of Article 123(1) TFEU and 21(1) 
of the ESCB/ECB Statute. 

Article  6  of  Chapter  1  of  the  Riksbank  Act  provides  that  the  Riksbank  may  grant  credit  to  or 
purchase  debt  instruments  directly  from  publicly  owned  credit  institutions  under  the  same 
conditions as applied to other credit institutions under the law. For the  sake of legal  certainty, it 
should  be  added  that,  in  the  context  of  the  supply  of  reserves  by  central  banks,  these  publicly 
owned credit institutions should be given the same treatment as private credit institutions. 

According  to  Article  4  of  Chapter  8  of  the  Riksbank  Act,  the  General  Council  shall  decide  on  the 
allocation  of  the  profits  of  the  year.  Pursuant  to  Article  6  of  Chapter  8  of  the  Riksbank  Act,  the 
Swedish  Parliament  shall  adopt  the  balance  sheet  and profit  and loss  account  and approves the 
Council’s decision on the allocation of the central bank’s profit. The Swedish Parliament may refuse 
to approve a decision only if it is contrary to Chapter 8 of the Riksbank Act. If approval is refused, 
the Council shall take a new decision. The Act should ensure that the reserve capital of Riksbank is 
left unaffected in any case and that the actual contribution to the State budget does not exceed 
the amount of the net distributable profit. 

Pursuant to Article 4 first paragraph point 5 of Chapter 2 of the Riksbank Act, the Riksbank may, in 
relation to financial undertakings, buy and sell Swedish sovereign debt. Pursuant to Article 5 point 
3 of Chapter 2 of the Riksbank Act, the Riksbank may, if there are exceptional reasons, buy and sell 
financial instruments other than sovereign debt referred to in Article 4 first paragraph point 5 of 
Chapter  2.  The  restriction  on  Riksbank’s  ability  to  purchase  and  sell  financial  instruments  other 
than Swedish sovereign debt instruments is incompatible with the prohibition of  privileged access 
under Article 124 TFEU. Article 124 prohibits any measure, not based on prudential considerations, 
establishing  privileged  access  by,  inter  alia,  central  governments  to  financial  institutions.  Under 
Article  1(1)  of  Council  Regulation  (EC)  No  3604/93,  privileged  access  is  understood  as  any  law, 
regulation or other binding legal instrument adopted in the exercise of public authority which, inter 
alia, obliges financial institutions to acquire or to hold liabilities of, inter alia, central governments, 
or  confers  financial  advantages  that  do  not  comply  with  the  principles  of  a  market  economy,  in 
order to encourage those institutions to acquire or hold such liabilities. Thus, as public authorities, 
national central banks  may  not take measures  granting  privileged access to financial institutions 
by  the  public  sector  if  such  measures  are  not  based  on  prudential  considerations.  Article  2  of 
Regulation  (EC)  No  3604/93  defines  ‘prudential  considerations’  as  those  which  underlie  national 
laws, regulations or administrative actions based on, or consistent with, Union law and designed to 
promote  the  soundness  of  financial  institutions  so  as  to  strengthen  the  stability  of  the  financial 
system as a whole and the protection of the customers of those institutions. As the restriction on 
Sveriges Riksbank’s ability to purchase and sell financial instruments other than Swedish sovereign 
debt instruments is not based on prudential considerations within the meaning of Article 124 TFEU, 
the restriction on Sveriges Riksbank’s ability to purchase and sell financial instruments other than 
Swedish sovereign debt instruments is incompatible with the prohibition on privileged access under 
Article 124 TFEU. 

100 

Convergence Report 2026 - Technical annex 
Chapter 6 - Sweden 

6.1.4.  Integration into the Eurosystem 

Objectives 

Chapter 2, Article 1 of the Riksbank Act should include a  reference to the secondary objective of 
the ESCB to support the general economic policies in the Union in line with Article 127(1) TFEU. 

Tasks 

The incompatibilities with regard to the ESCB/ECB tasks are as follows: 

•  absence of a general reference to the Riksbank subordination to the ECB’s legal acts (Chapter 
1, Article 4 of the Act and Chapter 9, Article 13 of Chapter 9 of the Instrument of Government); 

•  definition of monetary policy and monetary functions, operations and instruments of the ESCB 
(Chapter 2 of the Act; Chapter 9, Article 13 of Chapter 9 of the Instrument of Government); 

•  conduct of foreign exchange operations and the definition of foreign exchange policy (Chapter 

2, Article 2 of the Act); Articles 1 to 4 of the Law on Exchange Rate Policy of 1998); 

• 

right  to  authorise  the  issue  of  banknotes  and  the  volume  of  coins  and  definition  of  the 
monetary  unit  (Chapter 4  of  the  Act;  Chapter 9,  Article  14  of  Chapter 9  of  the  Instrument  of 
Government); 

•  ECB's right to impose sanctions.  

There are furthermore some imperfections regarding the: 

•  non-recognition of the role of the ECB and of the EU in the collection of statistics (Chapter 1, 

Article 11 of the Act); 

•  non-recognition of the role of the ECB in the functioning of payment systems (Chapter 3 of the 

Act); 

•  non-recognition  of  the  role  of  the  ECB  and  of  the  Council  in  the  appointment  of  an  external 

auditor; 

•  non-recognition of the role of the ECB in the field of international cooperation (Chapter 6 of the 

Act). 

6.1.5.  Assessment of compatibility 

As  regards  independence  of  the  central  bank,  the  prohibition  of  monetary  financing,  privileged 
access  and  integration  into  the  Eurosystem,  the  legislation  in  Sweden,  in  particular  the  Riksbank 
Act, the Instrument of Government as part of the Swedish Constitution and the Law on Exchange 
Rate Policy, is not fully compatible with the requirements of Article 131 TFEU for the reasons set 
out above. 

The Swedish authorities should remedy the above-mentioned incompatibilities and imperfections. 

6.2.  PRICE STABILITY 

6.2.1.  Respect of reference value 

The  12-month  average  inflation  rate,  which  is  used  for  the  convergence  assessment,  was  0.5 
percentage  point  below  the  reference  value  at  the  time  of  the  last  convergence  assessment  of 
Sweden in 2024. In May 2026, the reference value was 2.7%, calculated as the average of the 12-
month inflation rates in France, Cyprus and Denmark plus 1.5 percentage points. The corresponding 
inflation rate in Sweden was 2.2%, which was 0.5 percentage point below the reference value. The 
12-month  average  inflation  rate  is  projected  to  decline  by  the  end  of  2026  before  increasing 
somewhat in 2027, but to remain below the reference value in both years. 

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Chapter 6 - Sweden 

6.2.2.  Recent inflation developments 

HICP  inflation  in  Sweden  started  to  decrease  from  its  year-on-year  peak  of  10.8%  in  December 
2022  as  both  the  impact  of  the  sharp  rise  in  energy  prices  in  the  wake  of  Russia’s  full-scale 
invasion  of  Ukraine  and  of  supply  bottlenecks  faded.  Lower  energy  prices,  base  effects  and 
moderate wage increases as agreed by social partners further helped disinflation in the following 
two years, even as the nominal exchange rate weakened until the summer of 2023. 

Headline HICP inflation rates fell from 8.1% on average in 2022 to 2.0% in 2024. It was higher in 
2025  at  2.6%,  on  the  back  of  somewhat  stronger  food  and  energy  prices.  Food  price  increases 
registered double digit growth figures in 2023 before decelerating strongly in 2024 and picking up 
somewhat in 2025. Services inflation only moderated gradually from its 2023 peak and remained 
relatively  elevated  at  4.9%  on  average  in  2024  and  3.8%  in  2025.  This  contrasted  with  the 
pronounced easing of price increases in the non-energy industrial goods component, which reached 
0.2% y-o-y in 2025. In the first quarter of 2026, HICP inflation decreased to 1.7%, with a marked 
increase  in  energy  prices  more  than  offset  by  falling  non-energy  industrial  goods  prices  and  a 
deceleration in services inflation (60). In January and February electricity accounted for the largest 
part  of  the  rise  in  energy  prices,  partly  reflecting  a  cold  winter.  By  contrast,  liquid  fuel  price 
increases  in  response  to  the  conflict  in  the  Middle  East  pushed  up  energy  prices in  March  2026. 
However, time-limited excise reductions on liquid fuels pushed down energy prices from May 2026 
but downward impact is set to reverse when these reductions expire in late 2026. While exhibiting 
noticeable within-year dynamics in 2024 and 2025, inflation in Sweden was on average broadly in 
line with that of the euro area.  

(60)  Comparisons of data on HICP special aggregates for 2025 with previous years should be interpreted with caution due 
to methodological changes resulting from the implementation of version 2 of the European classification of individual 
consumption according to purpose (ECOICOP). 

102 

Table 6.1:weights  Sweden - Components of inflation(percentage change)1)in total   202020212022202320242025May-262025HICP0.72.78.15.92.02.62.21000Non-energy industrial goods1.01.05.67.40.80.2-0.3288Energy-8.815.331.4-11.3-8.51.67.077Unprocessed food 2.4-0.712.512.7-1.31.11.237Processed food1.91.18.811.02.94.52.1160Services1.82.54.15.74.93.83.2438HICP excl. energy, food, alcohol and tobacco1.41.84.76.53.22.41.8726HICP at constant tax rates 0.62.68.25.81.92.72.51000Administered prices HICP2.41.72.44.56.04.94.01491) Measured by the arithmetic average of the latest 12-monthly indices relative to the arithmetic average of the 12-monthly indices in the previous period.Source: Eurostat, European Commission calculations.012345678910Jan-20Jan-21Jan-22Jan-23Jan-24Jan-25Jan-26Jan-27SwedenReference valueGraph 6.1: Sweden -Inflation criterion(percent, 12-month moving average)Note: The dots at the right end of the chart show the projected reference value and 12-month average inflation rate of Sweden in December 2026 and December 2027. The reference values for 2020, 2022, 2024 and 2025 refer to the reference values calculated in the previous convergence reports.Source: Eurostat, Commission's Spring 2026 Economic Forecast.-2024681012202020212022202320242025SwedenEuro areaGraph 6.2: Sweden -HICP inflation(y-o-y percentage change)Source: Eurostat. 
 
 
 
    
 
 
 
         
        
Convergence Report 2026 - Technical annex 
Chapter 6 - Sweden 

Following the increase in headline inflation with a lag and with an overall more muted profile, HICP 
inflation  excluding  energy,  food,  alcohol  and  tobacco  had  peaked  at  6.5%  in  2023  and  then 
gradually  declined  to  2.4%  in  2025.  Compared  with  the  euro  area,  underlying  labour  costs  were 
more moderate, in line with multi-annual wage agreements. Firms also absorbed part of the cost 
increases  caused  by  supply  chain  disruptions  and  exchange  rate  developments  in  their  margins, 
dampening their impact on final consumer prices. In 2025, import prices fell stronger than in the 
euro area, in line with a strengthening exchange rate. 

From  the  peak  in  inflation  at  the  end  of  2022,  the  HICP’s  energy  and  unprocessed  food 
components  exhibited  strong  initial  downswings,  along  with  noticeable  volatility,  followed  by 
firming  prices  at  the  end  of  2025.  By  contrast,  other  inflation  components  showed  a  more 
consistent  moderating  trend,  which  was  most  accentuated  for  non-energy  industrial  goods.  The 
progressive disinflation reflected the fading impact of globally induced demand and supply shocks 
and  their  complex  interactions  affecting  Swedish  supply  chains  and  consumption  patterns.  The 
unwinding of the direct effects of Russia’s full-scale invasion of Ukraine, notably affecting energy 
markets and associated supply bottlenecks was followed by heightened global trade tensions and 
geopolitical uncertainty in  the course of 2025. These affected not only trade patterns and prices, 
but  also  dampened  economic  activity  in  Sweden,  notably  through  effects  on  confidence  and 
disposable  income  and  profits,  particularly  affecting  private  consumption  growth.  Over  the  latter 
part of the period in focus, the lagged impact of the strengthening of the effective exchange rate 
of the krona from 2024 helped dampen price increases for imported goods and services, even as 
the pass-through of the exchange rate to consumer prices is estimated to have normalised after 
inflation  peaked.  In  the  period  from  January  to  May  2026,  HICP  inflation  fell.  This  reflects  the 
combined  impact  of  movements in  opposite  directions  for some  of  the  main  components of  the 
consumption basket with higher energy prices, mainly for electricity, pushing up inflation and the 
lower  rate  of  VAT  on  food  along  with  temporarily  reduced  taxes  on  liquid  fuels  having  had  a 
downward  impact  from  April  2026.  In  addition,  services  inflation  remained  moderate,  reflecting 
weak underlying inflationary pressures. 

6.2.3.  Underlying factors and sustainability of inflation 

Macroeconomic policy mix and growth developments 

In 2024 real GDP growth in Sweden was weak, at 1%. This reflected, apart from global factors, the 
impact of previous high inflation and increases in interest rates. The latter had an important effect 
as the Swedish economy is much more sensitive to interest rates than most EU countries in view 
of high private debt levels and the short average interest rate fixation period of loans. As interest 
rates  and  inflation  started  to  come  down,  global  uncertainty  held  back  spending  by  Swedish 
households and  businesses  as an  incipient  recovery  began  to  take  shape  in  the  course  of  2025. 
GDP  growth  for  2025  averaged  1.5%.  For  2026  an  economic  recovery  is  expected  to  be  led  by 
domestic  demand.    Real  household  disposable  income  is  set  to  benefit  from  tax  reductions  and 
lower indirect taxes on food, gains in real wages and the lagged impact of previous falls in interest 
rates. Gross fixed capital formation is also expected to contribute to the upturn, given increases in 
public  investment,  including  capital  outlays  on  defence,  while  the  previous  drag  from  housing 
construction is due to bottom out. The conflict in the Middle East, however, is set to dampen the 
pace of the recovery. This partly reflects the negative impact on household disposable income and 
profits of import price increases, especially for commodities, as well as on financing costs. Against 
a backdrop of business and consumer confidence being negatively affected as well, which is set to 
weigh  on  private  consumption  and  investment,  economic  growth  is  expected  to  reach  1.8%  in 
2026.  In  2027,  a  progressive  normalisation  of  economic  conditions  is  projected  to  result  in  real 
GDP growth of 2.2%. The labour market has remained broadly resilient despite sluggish economic 
activity in the past few years. Employment is set to gradually recover as the unemployment rate is 
expected to fall from a peak of 8.8% in 2025 to slightly below 8% in 2027.  

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Chapter 6 - Sweden 

The  fiscal  stance  was  expansionary  in  2024,  chiefly  on  account  of  other  capital  expenditure.  It 
turned  slightly  contractionary  in  2025 (61)  but  is  expected  to  turn  strongly  expansionary  again  in 
2026, on account of strong expenditure increases, including on defence, and substantial reductions 
in VAT and income taxes. In 2027, the fiscal stance is expected to be mildly contractionary on the 
assumption of no policy changes. 

Monetary policy, conducted within an inflation targeting framework (62), eased markedly in recent 
years. Since May 2022, the Riksbank has lowered its main policy rate in eight steps, from 4% to 
1.75%  as  of  October  2025  as  inflation  trended  lower  and  inflation  expectations  remained 
anchored. At its latest meeting on 16 June 2026, the Executive Board decided to leave the policy 
interest rate unchanged at 1.75%. Furthermore, the Riksbank started normalising its balance sheet 
by reducing the stock of securities it accumulated over 2015-2022 as part of its monetary policy 
easing.  From  April  2023,  the  Riksbank  started  to  sell  government  bonds.  In  June  2023  and 
February  2024,  the  Riksbank  decided  to  increase  the  pace  of  bond  sales  with  a  view  to  enable 
well-functioning  markets  and  lower  financial  risk  for  the  central  bank  balance  sheet  without 
prejudice to reaching the inflation target. Overall, the central bank’s securities holdings decreased 
from a peak of SEK 1012 billion (17.4% of GDP) in Q1 2022 to SEK 216 billion in January 2026. In 
accordance  with  the  updated  central  bank  law,  the  Riksbank  received  a  capital  injection  in  2024 
amounting  to  SEK  35  billion  to  restore  its  equity  to  the  statutory  level  following  the  losses 
stemming  from  changes  in  the  value  of  the  bond  portfolio  purchases  that  had  been  aimed  at 
countering the impact of the pandemic. 

(61)  The  fiscal  stance  is  measured  as  the  change  in  general  government  primary  expenditure,  net  of  the  incremental 
budgetary  impact  of  discretionary  revenue  measures,  excluding  one-off  and  cyclical  unemployment  expenditure,  but 
including expenditure financed by non-repayable support (grants) from the Recovery and Resilience Facility and other 
EU  funds,  relative  to  medium-term  (10-year)  average  potential  GDP  growth  rate.  A  negative  (positive)  sign  of  the 
indicator corresponds to an expansionary (contractionary) fiscal policy stance. 

(62)  Since  1995,  the  Riksbank  has  targeted  increases  in  the  domestic  CPI  with  the  aim  of  keeping  inflation  at  2%.  In 
September  2017,  the  Riksbank  changed  its  target  from  measuring  inflation  in  terms  of  CPI  to  CPIF  (CPI  with  the 
interest rate component kept unchanged). 

104 

Table 6.2:Sweden - Other inflation and cost indicators1)(annual percentage change)20202021202220232024202520262)20272)HICP inflationSweden0.72.78.15.92.02.61.51.8Euro area0.32.68.45.52.42.13.02.3Private consumption deflatorSweden0.82.26.76.72.62.71.51.8Euro area0.62.46.86.32.42.02.92.4Nominal compensation per employeeSweden2.54.92.05.35.21.73.43.7Euro area-0.44.44.65.34.53.93.23.2Labour productivitySweden-0.73.9-2.2-1.41.31.71.21.3Euro area-4.64.81.3-1.10.00.70.50.8Nominal unit labour costsSweden3.10.94.36.83.80.02.22.4Euro area4.5-0.43.36.54.63.22.72.3Imports of goods deflatorSweden-5.45.123.74.4-1.5-3.60.90.7Euro area-3.99.722.0-4.1-1.8-1.03.70.51) The figures for the euro area refer to the euro area with 21 Member States. 2) Commission's Spring 2026 Economic Forecast. Source: Eurostat, Commission's Spring 2026 Economic Forecast. 
 
    
 
 
 
Convergence Report 2026 - Technical annex 
Chapter 6 - Sweden 

Wages and labour costs 

Employment growth had been relatively strong in Sweden in the decade before the inflation peak 
in 2022. The labour force participation rate is one of the highest in the EU. However, employment 
growth  and  high  labour  force  participation  have  gone  hand  in  hand  with  a  relatively  high 
unemployment rate, which is among the highest in the EU. This partly reflects the relatively strong 
growth  of  the  labour  force.  The  unemployment  levels  are  affected  by  a  high  share  of  upper 
secondary pupils and students who are reported as having a job according to LFS definitions but 
are  at  the  same  time  enrolled  in  full-time  education.  For  a  part,  however,  the  relatively  high 
unemployment  rate  mirrors  significant  mismatches and  skill  shortages,  including  among  persons 
from  disadvantaged  socio-economic  and  migrant  backgrounds.  On  the  back  of  heightened 
uncertainty in the wake of global economic policy developments and in line with muted economic 
activity, the labour market weakened in  2024. Employment growth only picked up appreciably in 
the  second  half  of  2025.  This  notwithstanding,  unemployment  is  expected  to  firm,  following 
economic activity with the usual cyclical lag. The unemployment rate is set to have peaked at 8.8% 
in 2025 and to fall gradually in 2026-27 in line with the projected economic recovery. 

from  5.2% 

The  growth 
in  nominal  compensation  per 
employee  stood  at  1.7%  on  average  in  2025, 
down 
in  2024.  As  nominal 
compensation  was  well  below  inflation  rates  in 
2022  and  2023,  this  development  shows  a 
recovery  in  real  wages.  However,  nominal  unit 
labour  cost  growth  was  appreciably  lower  than 
gains in nominal compensation in both 2024 and 
2025,  while  import  prices  overall  decreased  in 
both  years,  partly  reflecting  exchange  rate 
developments.  Notwithstanding  the  appreciation 
of  the  exchange  rate,  wage  developments  were 
consistent with healthy corporate profitability and 
competitiveness. 
In  Sweden,  social  partners 
typically  first  negotiate  a  benchmark  agreement 
for  exporting  sectors  aimed  at  maintaining  cost 
competitiveness vis-a-vis major trading  partners.  Other sectors, including services, tend to follow 
this  benchmark  rather  closely.  The  most  recent  multi-annual  wage  agreement  was  concluded  in 
October 2025 and extends until September 2027. It provides for relatively moderate compensation 
growth  with  benchmark  gains  of  3.4%  in  the  first  and  3.0%  in  the  second  year.  Allowing  for  a 
modest wage drift, the growth of compensation per employee is projected to 4.0% in 2026 against 
the  backdrop  of  falling  inflation  and  to  increase  to  4.6%  in  2027.  The  current  collective 
agreements  should  not  contribute  to  upward  price  pressure.  The  Swedish  wage  negotiation 
framework  thus  is  expected  to  continue  delivering  outcomes  supporting  medium-term  price 
stability and firms’ price  competitiveness. Moreover, overall healthy corporate profitability should 
allow  firms  to  cushion  some  increases  in  compensation  in  sectors  with  particular  labour scarcity 
without adding to upward pressure on prices. Overall, the risks of significant second round effects 
of wage increase on inflation appear to be limited. 

Sweden  had  moderate  labour productivity  growth  in  the  years  before  2019.  In  the  period  2020-
2022 the pandemic induced strong swings in economic activity while employment was cushioned 
by  a  combination  of  labour  hoarding  and  various  support  schemes.  As  a  result,  aggregate 
measures of changes in labour productivity and unit labour costs were distorted in the aftermath 
of  the  pandemic  but  have  started  normalising  since.  Unit  labour  costs  were  flat  in  2025  -  well 
below  to  the  euro  area  average  -  reflecting  modest  gains  in  overall  labour  compensation  and 
productivity  as  employment  remained  resilient  in  the  face  of  a  delayed  economic  upturn.  Unit 
labour cost growth is set to average to 2.2% in 2026 and to then rise again to 2.4% in 2027.  

105 

-4-2024681020202021202220232024202520262027Productivity (real GDP per person employed)Nominal compensation per employeeNominal unit labour costsHICP inflationGraph 6.3: Sweden -Inflation, productivity and wage trends(y-o-y % change)Source: Eurostat, Commission's Spring 2026 Economic Forecast.         
Convergence Report 2026 - Technical annex 
Chapter 6 - Sweden 

External factors 

Given the openness of the Swedish economy, developments in import prices traditionally play an 
important  role  in  domestic  price  formation.  Import  price  growth  (measured  by  the  deflator  of 
imports of goods measured in national currency) has fluctuated significantly over the past years. 
This was for a large part due to the reaction of commodity prices to Russia’s invasion of Ukraine, 
followed by gyrations induced by wider geopolitical, trade tensions and, more recently, the Middle-
East  conflict  which  affected  import  prices.  The  lagged  effect  of  exchange  rate  movements  also 
played  a  role,  as  the  upward  effects  from  krona  weakening  during  2022  and  most  of  2023 
reversed subsequently.  

In 2024, the import deflator for goods fell by 1.5% whereas the one for services rose by 2%. On 
the  back  of  krona  strengthening  the  import  deflator  for  goods  decreased  by  3.6%  in  2025, 
compared  to  a  1.0%  fall  in  the  euro  area.  The  precise  impact  of  changes  in  import  prices  on 
consumer  price  inflation  is  difficult  to  gauge.  Going  forward,  this  may  remain  more  difficult  to 
assess  than  in  the  period  before  the  pandemic  in  view  of  high  trade  price  volatility  and  the 
complex  interactions  between  tariffs,  trade  and  supply  chain  disruptions,  exchange  rate 
movements,  and  inventory  adjustments.  There  is  evidence  that  suggests  that  the  pass-through 
strengthened significantly during the episode of high inflation but has normalised since. According 
to the Commission’s Spring 2026 Economic Forecast, import prices gains are expected to increase 
by 0.7% in 2026 and 0.8% in the following year.  

From the second half of 2023, the nominal as well as various measures of real effective exchange 
rates  (measured  against  a  group  of  36  trading  partners)  strengthened,  albeit  with  quite  some 
short-term  volatility.  Real  effective  exchange  rate  closely  followed  movements  in  the  nominal 
exchange  rate.  That  said,  changes  in  the  bilateral  nominal  exchange  rate  against  the  US  dollar 
were more pronounced than against the euro. Taken together, over the period in focus there were 
no  major  discrepancies  between  the  growth  in  domestic  prices  and  domestic  price  increases 
among  Sweden’s  main  trading  partners.  Likewise,  for  2026  and  2027,  major  discrepancies 
between  nominal  and  real  effective  exchange  rates  are  not  expected  to  occur.  Overall,  Swedish 
cost developments do not appear to pose major challenges to competitiveness. 

Administered prices and taxes 

The share of administered prices in the Swedish HICP basket amounts to just above 15%, a value 
some  4  percentage  points  above  the  euro  area  average.  The  most  important  item  in  the 
administrated  price  basket  is rents,  which  react  to  interest  rates and overall  inflation  with  a  lag. 
Rent  increases  tend  to  be  concentrated  at  the  beginning  of  the  year.  In  2024  and  2025,  overall 
administered  price  inflation  was  well  above  headline  HICP  inflation  at  just  below  4.5  and  6% 
respectively, with rent increases an important factor accounting for this given the relevant lags. 

Tax changes exerted no major impact on headline inflation in both 2024 and 2025, as the pace at 
which  HICP  at  constant  taxes  increased  was  broadly  in  line  with  the  headline  number  for  both 
years. With a delayed response to past increases in consumer prices, rents are expected to have a 
lower impact on administered prices and thus overall HICP inflation in 2026 and 2027. 

Medium-term prospects 

According  to  the  Commission’s  Spring  2026  Economic  Forecast,  inflation  is  set  to  remain 
somewhat below 2% in 2026 and 2027 despite price increases especially for fuels in 2026. This 
relatively moderate development mirrors VAT cuts, moderate wage developments, and the lagged 
impact of  krona strengthening. Firms’ pricing  plans have  remained contained driven by the same 
factors. The profile for expected inflation is consistent with price stability even though upside risks 
stem from the impact of the global geopolitical situation, notably on energy and commodity prices.  

Some limited upward price impact may emerge from labour costs if a firm economic recovery is 
taking  hold  and  if  policies  to  address  skills  mismatches  are  not  sufficient  to  reduce  labour 
shortages.  Such  structural  labour  market  constraints,  exacerbated  by  pervasive  problems  in  the 
housing market,  can amplify labour shortages in specific sectors and regions, with implications for 

106 

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Chapter 6 - Sweden 

wage pressures, productivity and adjustment capacity. However, the country has a long tradition of 
social partners taking competitiveness and price stability into account in their wage agreements. In 
all, HICP inflation is forecast to average 1.5% in 2026 and 1.8% in 2027. HICP inflation excluding 
energy, food, alcohol and tobacco is set to continue to fall from 2.4% in 2025 to 1.7% in 2026 and 
increase again to 2.2% in 2027. 

As  of  2026,  inflation  is  expected  to  stay  within  the  Riksbank’s  target.  The  main  factor  pushing 
down inflation in 2026 are set to be the temporary decrease in VAT on food from 12% to 6%, to 
take effect from April 2026 until 1 January 2028 along with decreases in excises on liquid fuels. 
Inflation is projected to reach 1.8% in 2027 as the impact of temporary factors is to fade. Risks to 
the inflation outlook appear broadly balanced for 2026 and 2027. Upside risks are related to weak 
productivity trends, the costs of the energy transition, structural labour and skill shortages, and the 
renewed  supply  disturbances  resulting  from  the  geopolitical  environment.  Downside  risks  could 
stem  from  commodity  prices,  further  exchange  rate  strengthening  and  weaker-than-expected 
economic activity. Surveys of market inflation expectations suggest that they have remained well 
anchored at close to the Riksbank’s target over the medium term. 

The  level  of  consumer  prices  in  Sweden  relative  to  the  euro  area  has  increased  since  Sweden 
joined the EU in 1995. In 2024, the Swedish price level stood at 110% of the euro area average, 
down  from  117%  in  2022.  The  relative  real  GDP  per  capita  level  in  Sweden  has  also  slightly 
decreased since 2021, reaching about 106% of the euro area average in PPS terms in 2025. 

6.3.  PUBLIC FINANCES 

6.3.1.  Recent fiscal developments 

The  Swedish  general  government  deficit  has  remained  within  the  3%  of  GDP  Treaty  reference 
value. Sweden’s general government balance strengthened slightly from a deficit of 1.5% of GDP 
in 2024 to a deficit of 1.3% of GDP in 2025, reflecting a modest pickup in growth.  

The revenue-to-GDP ratio remained stable from 2023 to 2024 at just above 48.9% and decreased 
in  2025  to  48.6%,  reflecting  weak  domestic  demand  and  an  increase  in  mortgage  interest 
deductions.  

The expenditure-to-GDP ratio increased from 50.0% in 2023 to 50.5% in 2024, reflecting higher 
spending inter alia on defence in the context of modest growth, but reversed to 49.9% in 2025, as 
growth picked up somewhat. 

On  11  October  2024,  Sweden  submitted  its  national  medium-term  fiscal-structural  plan  to  the 
Council  and  to  the  Commission.  Based  on  the  plan’s  policy  commitments  and  macroeconomic 
assumptions, on 26 November 2024, the Commission recommended to the Council that it endorse 
Sweden’s national medium-term fiscal structural plan, since it fulfilled the requirements set out in 
Regulation  (EU)  2024/1263.  On  21  January  2025,  the  Council  adopted  a  recommendation 
endorsing Sweden’s plan. The plan covers the period 2025-2028 and defines an upper limit for net 
expenditure growth over the four years that the authorities commit not to exceed. The maximum 
growth rates of net expenditure are 4.0% in 2025, 4.4% in 2026, 4.4% in 2027, and 4.6% in 2028.  

Net expenditure grew by 2.2% in 2025, below the recommended maximum growth rate of 4.0%. 
When considering 2024 and 2025 together, the cumulative growth rate of net expenditure is also 
below the recommended maximum growth rate. 

The fiscal stance in 2025 was slightly contractionary at 0.3% of GDP, driven mainly by relatively 
modest growth in the net nationally financed primary current expenditure. 

The  downward  path  of  the  general  government  debt-to-GDP  ratio,  falling  to  a  level  of  just  over 
32.0%  of  GDP  in  2023,  was  reversed  in  2024  and  the  ratio  rose  to  a  level  of  35.1%  of  GDP  in 
2025. This reflects partially the ending of the effect of the stepwise debt-reducing repayment of a 
Riksbank loan for foreign currency reserves during 2021-2023 but also increased spending during 
a period of subdued growth. 

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Chapter 6 - Sweden 

6.3.2.  Medium-term prospects 

The  2026  annual  budget  was  adopted  by  the  Swedish  parliament  (Riksdagen)  on  18  December 
2025. It was based on a projected GDP growth of 3.1% in 2026 and plans a general government 
deficit of 1.8% of GDP, containing measures adding up to close to 2% of GDP notably on defence 
and support to Ukraine. The revenue side includes a decrease in income taxes and a temporary VAT 
reduction  on  food.  On  the  expenditure  side,  besides  the  significant  defence  spending,  the 
government expects to start spending on a multi-year support scheme for new nuclear facilities.  

On 30 April 2026, Sweden submitted its 2026 Annual Progress Report, reporting on relevant fiscal 
outturn  data  and projections,  and the  implementation  of  reforms  and  investments  responding  to 
the  main  challenges  identified  in  the  European  Semester  and  the  Council’s  country-specific 
recommendations.  The 2026 Annual Progress Report also  entails Sweden’s biannual reporting on 
the progress made in delivering on its recovery and resilience plan in accordance with Article 27 of 
Regulation (EU) 2021/241. 

For  2026,  the  Commission’s  2026  Spring  Economic  Forecast  projects  the  general  government 
deficit to rise to 2.8%, reflecting inter alia spending on  defence along with a lowering of VAT on 
food  and  a  reduction  in  taxes  on  fuels  and  personal  income.  The  general  government  debt  is 
projected to increase from 35.1% of GDP in 2025 to 36.6% of GDP in 2026, driven mainly by the 
higher primary deficit.  

In the spring 2026, the Commission assessed Sweden’s risks of compliance with the recommended 
maximum  growth  of  net  expenditure  in  2026,  based  on  outturn  data  for  2024-2025  and  the 
Commission’s  Spring  2026  Economic  Forecast,  which  incorporates  information  provided  in  the 
Annual  Progress  Report.  Net  expenditure  is  projected  to  grow  by  6.5%  in  2026,  above  the 
recommended growth of 4.4%. The deviation above the recommended maximum is equivalent to 
an annual deviation of 1.0% of GDP. However, when considering 2024, 2025 and 2026 together, 
the  projected  cumulative  growth  rate  of  net  expenditure  is  below  the  recommended  maximum 
growth rate. 

108 

Table 6.3:Sweden - Budgetary developments and projections (as % of GDP unless indicated otherwise)Outturn and forecast 1)20202021202220232024202520261)20271)General government balance-3.2-0.21.0-0.9-1.5-1.3-2.8-2.5- Total revenue49.950.250.449.148.948.648.147.5- Total expenditure53.150.449.450.050.549.950.850.0   of which: - Interest expenditure0.30.20.50.70.70.60.60.7p.m.: Tax burden43.343.943.542.642.441.841.641.5Primary balance-2.90.01.5-0.2-0.8-0.7-2.1-1.8Fiscal stance 2)1.1-0.30.5-0.2-0.50.3-1.90.6Recommended growth in net expenditure (%)4.04.44.4Growth in net expenditure (%)2.26.52.0Government gross debt40.537.234.432.234.235.136.637.7p.m: Real GDP growth (%)-1.95.21.3-0.21.01.51.82.21) Commission’s Spring 2026 Economic Forecast. 2) The fiscal stance is based on the increase in net expenditure (including that financed by the EU budget) relative to medium-term     potential GDP growth.  A positive (negative) sign indicates a contractionary (expansionary) fiscal stance (in % of GDP). The fiscal      stance profile in 2020-2023 does not include the temporary impact of COVID-19 emergency measures. Source: European Commission. 
 
       
 
 
Convergence Report 2026 - Technical annex 
Chapter 6 - Sweden 

Based on the Commission’s estimates, the fiscal stance for 2026 is projected to be expansionary 
at  1.9%  of  GDP  with  the  growth  in  nationally  financed  primary  current  expenditure  (net  of  new 
revenue measures) providing close to all the expansionary contribution.  

Debt sustainability risks appear low over the medium term. The general government debt ratio is 
projected  to  increase  from  around  35%  of  GDP  in  2025  to  around  44%  of  GDP  in  2036.  This 
projection assumes that the structural primary surplus of 0.3% of GDP in 2025 deteriorates to a 
deficit of 1.2% of GDP in 2026 and remains at that level (excluding changes in the cost of ageing) 
over the projection period (63). 

The  low  sensitivity  to  possible  macro-fiscal  shocks  also  contributes  to  this  assessment.  In 
particular, if the structural primary deficit increased by another 0.5 percentage point, the projected 
debt ratio in 2036 would be 5 percentage points higher than in the baseline, still well below 60% 
of GDP. 

Finally, several  additional  risk factors  need  to  be 
considered  in  the  assessment.  On  the  one  hand, 
risk-increasing  factors  are  related  to  (i)  the 
relatively  high  share  of  short-term  public  debt 
and  (ii)  contingent  liability  risks  stemming  from 
elevated  private  debt.  On  the  other  hand,  risk-
mitigating factors include (i) a relatively low share 
of public debt held by non-residents, (ii) relatively 
stable  financing  sources  with  a  diversified  and 
large  investor  base,  and  Sweden’s  positive  net 
international investment position. 

Sweden has a robust fiscal framework with clear 
fiscal  rules  with  a  medium-term  focus  that  has 
helped  Sweden  keep  the  government  debt  ratio  at  a  sustainable  level.  It  has  a  well-established 
Independent  Fiscal  Institution  (IFI)  with  a  relatively  narrow  mandate.  Following  the  established 
practice,  a  Parliamentary  Committee  reviewed  the  net  lending  target  in  2024.  In  line  with  its 
conclusions, the target level was lowered from 0.33% of GDP over the cycle to 0.0% of GDP, with 
effect  from  2027.  However,  departing  from  the  usual  practice  of  including  all  government 
expenditure  when  assessing  compliance  with  the  target,  a  derogation  has  been  made  in  the 
framework allowing the parliament to exclude defence spending and support to Ukraine of up to a 
cumulative total of SEK 300 billion (EUR 27.3 billion, 4.5% of GDP) until 2034. The debt anchor is, 
however, maintained at 35% of GDP (+/-5 percentage points).  

The Parliamentary Committee was also tasked with identifying any need for further changes to the 
Swedish fiscal framework following the conclusion of the European Economic Governance Review, 
including the amended Budgetary Framework Directive (2011/85/EU). The amended  Directive will 
affect some aspects of the Swedish fiscal framework, such as the tasks and status of the Swedish 
Fiscal Policy Council, as it extends the independence safeguards for independent fiscal institutions 
to  all  EU  Member  States  and  assigns  some  new  tasks  to  these  institutions.  Currently,  the 
Commission is assessing how Member States have transposed the new provisions. 

6.4.  EXCHANGE RATE STABILITY 

The  Swedish  krona  does  not  participate  in  ERM  II.  As  indicated  above,  the  Riksbank  pursues 
inflation  targeting  under  a  free-floating  exchange  rate  regime,  that  allows  foreign  exchange 
market interventions by the central bank. 

(63)  This is in line with the no-fiscal-policy-change assumption as from 2027 and implies that the net expenditure path that 
Sweden committed not to exceed in its medium-term plan is not taken into account beyond 2026 in the projection. For 
details  on  the  methodology,  see  European  Commission  (2026),  Debt  Sustainability  Monitor  2025,  Institutional  Paper 
332, February 2026. 

109 

-3-2-1012024202520262027Expenditure financed by RRF grants and EU funds (e)Other capital expenditure (d)Nationally financed investment (c)Net nationally financed  primary current expenditure (b)Fiscal stance (f=a+e)Net nationally financed  primary expenditure (a=b+c+d)ExpansionaryContractionarySource: Commission's Spring 2026 Economic Forecast.Graph 6.4: Sweden -Fiscal stance and its components(percent of GDP) 
        
Convergence Report 2026 - Technical annex 
Chapter 6 - Sweden 

A  long-term  trend  of  krona  depreciation  against  the  euro  started  in  2013.  The  Swedish  krona 
depreciated  against  the  euro  by  more  than  40%  from  its  strongest  point  in  March  2013  to 
September  2023.  In  particular,  from  the  end  of  2021  to  September  2023,  the  Swedish  krona 
entered  a  depreciation  cycle  that  culminated  with  the  krona  reaching  an  all-time  low  of  11.8 
Swedish  krona  to  the  euro  in  September  2023.  The  krona  then  regained  some  of  its  losses, 
reaching  10.9  SEK  to  EUR  in  May  2026.  Overall,  the  volatility  in  the  exchange  rate  has  been 
significant, with short-term fluctuations reflecting changes in risk appetite and short-term funding 
flows, as well as changing perceptions of the future direction of monetary policy in the context of 
high uncertainty regarding the inflation outlook. 

The  three-month  STIBOR-Euribor  spread  has  been  volatile  since  the  beginning  of  2022.  While  it 
stood around 50 basis points in 2021, it increased rapidly in 2022 and peaked at 110 basis points 
in July 2022, reflecting an earlier monetary policy tightening in Sweden than in the euro area. The 
three-month  spread  then  decreased  until  the  November  2024  to  a  level  of  -33  basis  points. 
Afterwards, it recovered to 23 basis points in May 2025 and fell again to -21 basis points in May 
2026. The overall decrease reflected that monetary conditions have become similar in Sweden and 
in the euro area with some periods of volatility. 

Since  December  2015,  the  Riksbank  can  intervene  on  foreign  exchange  markets.  At  the  end  of 
2025, international reserves (foreign currency and gold) stood at SEK 691 billion (10.5% of GDP). 
They increased to over SEK 705 billion (11% of GDP) in November 2024 before decreasing slightly. 
These  changes  can  be  related  to  valuation  effects  and  fluctuations  could  also  be  related  to  the 
Riksbank’s decision to change the financing method for its foreign exchange reserves. Starting in 
early 2021, the Riksbank started purchasing foreign currency whilst repaying the foreign currency 
loans it had taken at the Swedish National Debt Office over a period of 3 years. 

6.5.  LONG-TERM INTEREST RATES 

Long-term interest rates used to assess adherence to the convergence criterion reflect secondary 
market yields on a single benchmark government bond with a residual maturity of around 9 years. 

The Swedish 12-month moving average long-term interest rate, relevant for the assessment of the 
Treaty  criterion  was  3.0  percentage  points  below  the  reference  value  at  the  time  of  the  2024 
convergence assessment of Sweden. In May 2026, the latest month for which data is available, the 
reference value, given by the average of long-term interest rates Cyprus, France and Denmark plus 
2 percentage points, stood at 5.1%. In that month, the 12-month moving average of the yield on 
the Swedish benchmark bond stood at 2.6%, i.e. 2.5 percentage points below the reference value. 

As regards monthly data, long-term interest rates increased markedly over 2022-2023. The yield 
on the Swedish benchmark government bond increased from 0.1% at the end of 2021 to a peak of 
3.0%  in  October  2023.  This  increase  mainly  reflected  the  actual  and  expected  tightening  of 
monetary  policy  by  the  Riksbank  against  inflationary  pressures.  Long-term  interest  rates  then 

110 

9.510.010.511.011.512.0202020212022202320242025Graph 6.5: Sweden -SEK/EUR exchange rate(monthly averages)Source: ECB.-60-40-20020406080100120202020212022202320242025Graph 6.6: Sweden -3-M Stibor spread to 3-M Euribor(basis points, monthly values)Source: Eurostat and Refinitiv Workspace. 
 
   
        
Convergence Report 2026 - Technical annex 
Chapter 6 - Sweden 

slightly  eased  in  2024  and  increased  again  in  2025,  with  the  yield  on  the  Swedish  benchmark 
government bond reaching 2.8% in December 2025. It decreased slightly to 2.7% in May 2026.  

The yields on the Swedish benchmark government bond remained relatively closely aligned to the 
German  benchmark  bond,  in  line  with  the  safe-haven  status  of  Swedish  government  bonds.  The 
spread between Swedish and German long-term interest rates has decreased over the last years. 
After reaching its peak of 82 basis points in May 2022, it decreased markedly and turned negative 
to -14 basis points in May 2024. Since May 2024 the spread fluctuated between 0 and -34 basis 
points, reaching -31 basis points in May 2026. 

6.6.  ADDITIONAL FACTORS 

The  Treaty  (Article  140  TFEU)  calls  for  an  examination  of  other  factors  relevant  to  economic 
integration and convergence  to be taken into account in the assessment. The assessment of the 
additional  factors  —  including  balance  of  payments  developments,  product,  labour  and  financial 
market integration — gives an important indication of a Member State's ability to integrate into the 
euro area without difficulties. 

In November 2025, the Commission published its 15th Alert Mechanism Report (AMR 2026) under 
the  Macroeconomic  Imbalance  Procedure  (MIP  -  see  also  Box  1.6),  which  concluded  that  an  In-
Depth  Review  was  warranted  for  Sweden.  In  May  2026,  the  Commission  published  an  In-Depth 
Review for Sweden. Taking into account the assessment in the In-Depth Review, the Commission, in 
its Communication  ‘European Semester  – 2026 Spring Package’ (64), considers that Sweden is no 
longer  experiencing  macroeconomic  imbalances.  Vulnerabilities  related  to  its  real  estate  market 
and high  levels of  private  debt  remain  but  their  gravity  has lessened  recently.  High  private  debt 
levels combined with loans financed at the short end of the yield curve have exposed the Swedish 
economy to changes in monetary and financing conditions, leading to high interest rate sensitivity 
in  comparison  with  peer  countries.  House  prices  moderated  somewhat  as  debt  service  costs 
adjusted in response to changes in interest rates, yet household leverage remains elevated and is 
expected  to  rise  against  the  backdrop  of  the  easing  of  borrower-based  macroprudential 
requirements from April 2026. The large commercial real estate sector (CRE) is showing improved 
refinancing capacity as interest rates have eased, and capital market access has improved. Banks 
remain  strong,  profitable,  and  with  low  non-performing  loans.  Nevertheless,  households  and 
corporates  remain  highly  indebted  and  supply-side  rigidities  in  housing,  coupled  with  easing 
borrower  requirements,  are  likely  to  induce  increases  in  house  prices  and  debt  levels  as  the 
underlying drivers of vulnerabilities remain unaddressed. The financial sector is highly exposed to 
real  estate  but  is  profitable  with  sizable  risk-weighted  capital  buffers  against  adverse 
developments.  Policy  progress  has  been  limited,  and  without  firmer  policy  action  some  of  the 

(64)  COM(2026) 200 final, 3.6.2026. 

111 

-20246Jan-20Jan-21Jan-22Jan-23Jan-24Jan-25Jan-26SwedenReference valueGraph 6.7: Sweden -Long-term interest rate criterion(percent, 12-month moving average)Source: European Commission.-101234202020212022202320242025SwedenGermanyGraph 6.8: Sweden -Long-term interest rates(percent, monthly values)Source: Eurostat. 
 
 
      
    
Convergence Report 2026 - Technical annex 
Chapter 6 - Sweden 

structural features behind the identified vulnerabilities will persist. The tax system has continued 
to favour home ownership through low recurrent property taxation and to promote debt-financed 
housing acquisition through the generous tax deductibility of mortgage interest payments. Supply-
side rigidities in housing remain and the rental market has seen limited reform and average rents 
are still well below market rents, resulting in long waiting lists and a very low vacancy rate relative 
to other EU countries as the interaction with debt bias in taxation combines to push up prices and 
reduce  accessibility  in  the  housing  market.  These  policy  factors  behind  the  macroeconomic 
vulnerabilities remain unaddressed. 

Sweden’s  recovery  and  resilience  plan  (RRP)  includes  measures  to  address  a  series  of  structural 
challenges,  in  synergy  with  other  EU  funds,  including  cohesion  policy  funds  aimed  at  reducing 
country’s  territorial  and  social  disparities.  The  RRF  funding  provides  Sweden  with  EUR  3.4  billion 
over the 2021-2026 period and a first payment of EUR 1.6 billion was made in July 2025, with the 
remaining  payments  under  assessment  for  2026. Key  reforms  in  Sweden’s  RRP  include  those  in 
the  areas of  financing  of greenhouse  gas emission  saving  technologies  and infrastructure, 
insulation  of  housing, training  for  elderly  care and  broadband  roll-out  in  sparsely  populated 
areas.     

In addition to the RRF funding, cohesion policy provides Sweden with EUR 2.4 billion for the 2021-
2027 period. Cohesion policy financing aims particularly to further improve conditions for research 
and  innovation,  create  opportunities  for  entrepreneurship  and  industrial  transformation,  and 
support  digitalisation,  internationalisation  and  competitiveness.  Sweden  has  made  progress  in 
implementing  cohesion  policy,  but  challenges  remain,  and  disparities  persist  between  the  capital 
region and the rest of the country. 

6.6.1.  Developments in the balance of payments 

According  to  Balance  of  Payments  data,  Sweden’s  current  account  surplus  slightly  increased  to 
6.9% of GDP in 2024 as domestic demand growth was slow to recover from a period of sustained 
weakness. Some improvement in the balance on goods offset a limited worsening in the services 
balance. The primary income balance remained broadly stable at around 5% of GDP after having 
trended  up  in  previous  years.  In  2025,  the  current  account  surplus  decreased  to  6.1%  of  GDP, 
reflecting  slight  drops  in  the  balance  of  trade  in  goods  and  services  and  the  secondary  income 
balance.  The  solid  export  performance  was  supported  by  the  strong  competitive  position  of 
Swedish  exporters.  By  contrast,  as  in  earlier  years,  the  secondary  income  balance  continued  to 
exert  a  negative  impact  on  the  current  account  balance,  reflecting  Sweden's  foreign  aid  and  net 
contributions to international organisations, as well as remittances transferred by foreign workers 
in Sweden to their home countries.  

Sweden's net international investment position improved markedly to around 68% of GDP in 2024 
but  has  fallen  to  around  55%  in  2025.  Sweden's  financial  account  (net  of  changes  in  reserve 
assets)  shows  relatively  large  fluctuations  over  time.  However,  seen  over  a  longer  period,  the 
financial account balance has been mostly in surplus and mainly reflects Sweden's role as a net 
FDI investor abroad. The balance of portfolio investments fluctuates appreciably from year to year, 
mirroring the interplay of financial market conditions and perceptions, exchange rate movements 
and relative cyclical positions. It registered surpluses in the period 2022-2025. 

From  the  early  2000s,  Sweden's  export  market  share  has  been  declining,  a  phenomenon  also 
witnessed  in  several  other  high-income  countries.  However,  in  the  last  decade,  Sweden’s  export 
share  has  stabilised.  The  development  in  the  export  market  shares  is  linked  to  changing  global 
trade patterns and a stable to weakening trend affects most mature, industrialised economies with 
a  similar  focus  on  high-value-added  exports.  Thus,  it  does  not  suggest  any  underlying 
competitiveness  issues  per  se.  It  is  difficult  to  assess  short-term  fluctuations  in  export  shares 
given  the  high  degree  of  volatility  in  global  trade  since  2020,  with  disruptions  such  as from the 
pandemic  and  more  recent  trade  tensions  clouding  the  picture.  It  is  therefore  hard  to  separate 
specific  structural  factors  that  impact  trade  performance  from  cyclical  effects  and  the 
idiosyncratic impact of supply and demand disturbances that have been affecting the global and 
Swedish economies in recent years. 

112 

Convergence Report 2026 - Technical annex 
Chapter 6 - Sweden 

in 

by 

developments 

This  benign  conclusion  on  competitiveness  is 
cost 
buttressed 
competitiveness  indicators.  In  recent  years,  the 
real  effective  exchange  rates  mainly  mirrored 
changes  in  the  nominal  exchange  rate,  rather 
than major divergences in price or cost indicators 
between  Sweden  and  its  main  trading  partners. 
Various  measures  of  effective  exchanges  rates 
moved together. They weakened appreciably over 
most of the period 2021-2023 and subsequently 
to  broadly 
strengthened 
levels 
witnessed 
labour  costs 
late  2021.  Unit 
in 
compared  to  trade  partners  exhibited  relatively 
large  swings  in  recent  years  due  to  disparate 
behaviours  in  economic  activity  and  employment  metrics,  all  affected  heavily  by  the  pandemic, 
large-scale  policy  intervention (65),  the  following  episode  of  high  inflation,  rapid  monetary 
tightening  and the  subsequent  disinflation,  which  in  the  Swedish  case  went  hand  in  hand with  a 
prolonged  spell  of  cyclical  weakness.  Allowing  for  such  volatility,  there  is  not  a  clearly  visible 
underlying trend in unit labour costs compared to Sweden’s main trading partners. This suggests a 
continuing strong competitive position of Swedish exporters. 

return 

to 

6.6.2.  Market integration 

Sweden  is  well-integrated  with  the  euro  area  through  trade  and  investment  linkages.  Trade 
openness of the Swedish economy has been high, at 40% or more every year since 2005. Trade 

(65)  Short-term  movements  in  REER  based on  unit  labour  costs  should  be  interpreted  with  prudence as  unit  labour  costs 
were distorted by various pandemic support schemes in several countries, including Sweden. The trend in this measure 
in recent years has, this notwithstanding, been very similar to price-based gauges of the REER. 

113 

Table 6.4:Sweden - Balance of payments(percentage of GDP)202020212022202320242025Current account5.76.24.06.26.86.0of which: Balance of trade in goods4.64.43.74.75.14.8               Balance of trade in services-0.4-0.3-1.9-1.6-1.4-1.8               Primary income balance 3.63.94.14.74.84.8               Secondary income balance-2.1-1.8-2.0-1.6-1.7-1.9Capital account0.00.00.10.00.10.1External balance 1)5.76.24.16.26.96.1Financial account0.97.40.05.313.6-1.5of which: Direct investment0.70.91.63.9-0.2-1.7               Portfolio investment2.19.8-3.2-1.510.53.0               Other investment 2)-1.9-4.20.23.92.8-3.2               Change in reserves-0.11.01.4-1.00.50.5Financial account without reserves0.96.5-1.46.213.1-1.9Errors and omissions-4.81.2-4.1-0.96.7-7.6Gross capital formation24.425.326.925.325.125.5Gross saving30.031.130.631.231.330.7Net international investment position10.123.338.540.567.154.71) The combined current and capital account.2) Including financial derivatives.Sources: Eurostat, Statistics Sweden, European Commission calculations.8090100110202020212022202320242025Graph 6.9: Sweden -Effective exchange ratesNEERREER, HICP deflatedREER, ULC deflated(vs 36 trading partners; monthly averages;index numbers, 2020 = 100)Source: European Commission. 
 
    
 
 
 
 
        
Convergence Report 2026 - Technical annex 
Chapter 6 - Sweden 

openness  (see  Table  6.5  for  a  definition)  increased  significantly  from  around  41%  in  2020  to 
around 52% in 2022, where it has stabilised since. In 2025 the Swedish trade openness was 51%. 
The main euro area trading partners are Germany, the Netherlands and Finland, while among non-
euro area countries Norway, Denmark, and the United States are the main trade partners. 

The stock of inward FDI has remained broadly stable relative to GDP in recent years but declined 
somewhat to just below 70% of GDP in 2024 down from 78% of GDP in 2023 and from 70% of 
GDP in 2022. As regards net inward FDI the largest share originates from the euro area, whereas 
substantial flows originate from non-euro area countries, primarily Denmark, Norway and the UK, a 
well-established pattern over a longer period. 

to 

the 

respect 

absence 

Regarding  the  business  environment,  Sweden 
regularly  scores  top  positions  in  international 
rankings,  well  above  most  euro  area  Member 
States and currently ranks in the top ten at global 
level,  with 
IMD  World 
Competitiveness  Ranking.  According  to  the  World 
Bank's  2024  Worldwide  Governance  Indicators, 
Sweden  ranks  higher  than  the  average  of  the 
euro  area  Member  States  in  all  six  categories, 
notably voice and accountability, political stability 
government 
and 
effectiveness,  regulatory  quality,  rule  of  law  and 
control  of  corruption (66).  According  to  the  2026 
Country Report, Sweden has established strong frameworks for evaluating legislative impacts but 
could  align  better  with  best  practices  to  ensure  implementation  and  transparency.  Perceived 
corruption  as  a  barrier  to  doing  business  and  reported  experiences  are  extremely  low,  indicating 
that corruption risks are limited in practice. While Sweden has taken limited steps to strengthen its 
corruption prevention and detection framework, investigating and prosecuting corruption continues 
to achieve results, although law enforcement authorities are concerned by possible underreporting 
of  corruption  cases.  The  justice  system  performs  efficiently  overall  (67).  Sweden's  deficit  in  the 
transposition  of  EU  directives  in  2025  (Scoreboard  2026)  stood  at  0.9%,  below  the  EU  average 
(1.1%) but above the 0.5% target proposed by the European Commission in the Single Market Act 
(2011). It was below the latter in 2024 (Scoreboard 2025).  

violence, 

of 

(66)  A Member State is considered to have a ‘low’ (‘high’) ranking compared with the average five euro area Member States 
with the lowest scores for each indicator if its score is at least 0.3 percentage points lower (higher) than that of the 
average of this euro area group of five euro area Member States. 

(67)  European Commission (2026), 2026 Country Report on Sweden, pp. 53-57. See also Annual Rule of Law Report, country 

chapter on Sweden. 

114 

Table 6.5:Sweden - Market integration202020212022202320242025Trade openness 1) (%)41.444.252.352.752.151.1Trade with euro area in goods & services 2)+3) (%)18.219.422.623.523.222.8IMD World Competitiveness Ranking 4)624868Internal Market Transposition Deficit 5) (%)0.72.00.70.50.40.9Real house price index 6)112.8121.5117.8104.7102.1100.4 1) (Imports + Exports of goods and services / (2 x GDP at current market prices)) x 100 (Foreign Trade Statistics, Balance of Payments). 2) (Imports + Exports of goods with EA-21 / (2 x GDP at current market prices)) x 100 (Foreign Trade Statistics). 3) Trade in services with EA-21 (average credit and debit in % of GDP at current prices) (Balance of Payments). 4) International Institute for Management Development (IMD). 5) Percentage of internal market directives not yet communicated as having been transposed, relative to the total. 6) Deflated house price index (2015=100) (Eurostat). Sources: Eurostat, World Bank, International Institute for Management Development, European Commission calculations.0.00.61.21.82.4Voice and accountabilityPolitical stability andabsence ofviolence/terrorismGovernmenteffectivenessRegulatory qualityRule of lawControl of corruptionSwedenEuro area average five lowestEuro area averageGraph 6.10: Sweden -World Bank's 2024 Worldwide Governance IndicatorsNote: Estimate of governance ranges from -2.5 (weak) to 2.5 (strong). Source: World Bank. 
 
  
 
 
 
  
Convergence Report 2026 - Technical annex 
Chapter 6 - Sweden 

Sweden has notified a complete transposition of the 5th Anti-Money Laundering Directive (AMLD). 
The Commission has assessed the transposition as complete and in conformity. 

Sweden was last assessed by the FATF in 2017 with good results and exited the FATF’s follow-up 
process  in  2020  with  the  publication  of  its  first  regular  follow-up  report.  The  follow-up  report 
reflects  the  situation  after the  5th  AMLD  transposition.  In  the  years  since,  Sweden  has innovated 
and gone further in several areas, most notably as regards public-private partnerships. Sweden’s 
SAMLIT public-private partnership has gone through several iterations supported by legislation, and 
the  country  has  also  created  a  Financial  Intelligence  Centre  (Finuc)  to  further  boost  its 
effectiveness in this area. 

The Swedish labour market, largely governed by negotiations between social partners at sectorial 
level, is characterised by high employment rates, but coupled with relatively high unemployment, 
especially for certain groups. Sweden has the one of the highest labour force participation rates in 
the  EU.  Relatively  modest  nominal  wage  increases,  even  in  the  recent  years  with  high  inflation 
have contributed to control costs and prices. Sweden has one of the lowest wage dispersions in the 
EU,  with  high  entry  wages,  relatively  little  wage  progression  and  very  similar  average  rates  of 
wage  increases  across branches of  activity.  According  to  the  2019  OECD employment  protection 
indicator,  the  employment  protection  of  permanent  workers  is  rather  high  compared  to  that  of 
temporary workers. The dispersion of regional unemployment rates is relatively low, but persistent 
imbalances in the housing market and high costs of housing, not only in the larger cities but also in 
university cities and economic and development poles outside metropolitan areas pose challenges 
to labour mobility. Substantial educational gaps reflecting inter alia issues with the grading system 
and  attainment  and  the  role  of  independent  schools  mirror  socio-economic  status  along  with 
geographical factors. Skills upgrading and the integration of low-skilled workers remain other key 
challenges  for  the  Swedish  labour  market.  Education,  competence  and  skills  challenges  are  thus 
broad-based.  The  vacancy  ratio  as reported  by  Eurostat  slowly  decreased  in  seasonally  adjusted 
terms  from a  peak  of  3.3%  in  the  third  quarter of  2022  to  1.8%  in  the  fourth  quarter of  2025, 
mirroring  signs  of  an  incipient  economic  recovery.  Relatively  high  vacancy  rates  persisting 
alongside high labour force participation indicate a fairly high rate of labour market turnover and 
job-switching,  but  also  point  at  mismatches  and  skills  shortages  extending  to  a  wide  range  of 

115 

Table 6.6:Sweden - Allocation of assets by financial sub-sectorRatio to GDP (%)SEEAEA 5 smallest202020242020202420202024Financial corporations (total)674678806707199180Central bank261877516144Monetary financial institutions2982743082759393Other financial intermediaries86821951772015Non-MMF investment funds 1)10813112512546Insurance co. and Pension Funds157174102802223Share of total (%)SEEAEA 5 smallest202020242020202420202024Central bank431073024Monetary financial institutions444038394752Other financial intermediaries13122425108Non-MMF investment funds1619151823Insurance co. and Pension Funds2326131111131) MMF stands for money market funds.Source: Eurostat. 
 
  
 
 
Convergence Report 2026 - Technical annex 
Chapter 6 - Sweden 

branches of economic activity. Skills shortages remain particularly pronounced in education, health 
care, social work, and real estate-related and other business services. 

The financial sector in Sweden is highly developed and its size is proportionally similar to that of 
the euro area. Relative to GDP, assets managed by the financial sector stood at 678% of GDP (vs. 
707% of GDP in the euro area). Since 2020, the Swedish financial sector has grown significantly 
more than in the euro area. Banking dominates the Swedish financial sector and made up around 
40% of the assets of the financial sector in 2024, which is more than in the euro area. The sector 
for insurance and pension-fund is the second largest financial assets manager in Sweden. It made 
up 26% of the assets held by the financial sector in 2024 (vs. 11% in the euro area). This reflects 
the high degree of  development of the funded  pension  system. Non-money-market funds are at 
par  with  the  euro  area,  and  despite  its  past  extensive  asset-purchase  programme,  the  Riksbank 
only  holds  a  relatively  small  share  of  total  financial  assets  (less  than  half  of  what  the  ECB 
accounts for). The investment-funds sector is of roughly equal size as in the euro area and plays a 
similar role. 

As to the financing of the economy, outstanding liabilities are higher than in the euro area (950% 
of GDP in 2024 vs. 722% of GDP in the euro area). Like in the euro area, loans and unlisted shares 
are the dominant source of funding. However, the order differs. While loans are the biggest source 
of  funding  in  the  euro  area,  in  Sweden  unlisted  shares  are  the  biggest  source  (with  31%),  while 

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Table 6.7:Sweden - Financing of the economy1)Ratio to GDP (%)SEEAEA 5 smallest202020242020202420202024Liabilities (total)1028950813722325305Loans27725825121510392Non-financial co. debt securities2923151232Financial co. debt securities108100686135Government debt securities292194724943Listed shares1811707164812Unlisted shares3112911961876554Other equity736682765864Trade credits and advances212136363633Share of total (%)SEEAEA 5 smallest202020242020202420202024Loans272731303230Non-financial co. debt securities322211Financial co. debt securities10108812Government debt securities3212101514Listed shares18189924Unlisted shares303124262019Other equity7710111720Trade credits and advances224510111) The table focuses on the financing needs of a country and how these are met by the financial system. The table is constructed    from the liabilities of all economic sectors, but only considers loans, debt securities, equity and trade credits. The sum of liabilities    in the table only reflects the total for the liabilities considered.Source: Eurostat. 
 
  
 
 
Convergence Report 2026 - Technical annex 
Chapter 6 - Sweden 

loans only take up 27%. The higher importance of listed shares in total liabilities (taking up 18% in 
Sweden as compared to 9% in the euro area) reflects the larger share of market funding available 
in  Sweden,  and  the  traditional  recourse  to  this  type  of  funding  by  corporation.  The  relatively 
smaller size of the government bond market in Sweden (2% in Sweden as compared to 10% in the 
euro area) reflects the lower level of general government debt in the country. 

Sweden's  banking  sector  is  well-integrated  into 
the  euro  area’s  financial  sector,  through  a  high 
level  of  foreign  ownership  in  its  banking  system, 
and because Stockholm acts as regional financial 
hub.  The  share  of  foreign-owned  institutions  in 
total  bank  assets  stood  at  19% in  2024,  slightly 
surpassing 
the  euro  area  average  by  1 
percentage  point.  The  share  decreased  by  2 
percentage points between 2020 and 2024. Bank 
concentration,  as  measured  by  the  market  share 
of  the  five  largest  credit  institutions  in  total 
assets,  has  increased  to  56%,  slightly  above  the 
euro area average, which was 50% at the end of 
2024. 

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0102030405060SE, 2020SE, 2024EA, 2020EA, 2024Concentration in the banking sector (CR5 ratio)Share of foreign institutions as % of total assetsGraph 6.11: Sweden -Foreign ownership and concentration in the                       banking sector(in percent, weighted averages)Source: ECB, Structural financial indicators.