Euro Adoption Path for EU Newcomers

Background:

All new EU members are required to adopt the euro as soon as the European Commission and ECB deem that they meet the required economic and legal criteria. The euro “convergence criteria” set out in the Maastricht Treaty require that the government deficit not exceed 3% of GDP, that government debt is less than 60% of GDP and that prices and interest rates have been stable in the years preceding entry. To make sure exchange rates are in line with the rest of the eurozone, new members are required to have taken part in the European exchange rate mechanism (ERM II) for at least two years before adopting the euro. The state must also make sure that it is legally prepared to enter the eurozone and especially that the rules governing its central bank are compatible with the monetary policy role of the ECB. Of the most recent entries to the EU, Estonia, Latvia and Lithuania are currently in the ERM II, seen as the “antechamber” to the euro, with Estonia expected to join first. The Czech Republic, Hungary and Poland, despite being members since 2004, remain outside the eurozone due to problems with inflation and, in the case of Hungary and Poland, dependence on debt and large government deficits.