Get documents about "martin Suerf
Shared by: alicejenny
-
Stats
- views:
- 0
- posted:
- 10/8/2012
- language:
- English
- pages:
- 23
Document Sample
Euro area enlargement – the ECB
Convergence Report May 2010
Reiner Martin
EU Countries Division
SUERF/MNB Conference
Budapest, 23 June 2010
The views expressed in this presentation are solely those of the presenter and do not necessarily
reflect those of the European Central Bank
Outline
• Macroeconomic background in CEE
• The enlargement process
• Economic convergence criteria and the state of
convergence
2
Macroeconomic background in CEE
Real GDP growth
(in percent)
HARD PEGS FLOATERS
15 15
10 10
5 5
0 0
1997 1999 2001 2003 2005 2007 2009 1997 1999 2001 2003 2005 2007 2009
-5 -5
-10 -10
-15 -15
-20 -20
Source: Eurostat.
Note: Romania included from 2000 onwards. Lines: unweighted average. Shaded areas:
maximum-minimum.
3
Macroeconomic background in CEE
Annual HICP inflation
(in percent)
HARD PEGS FLOATERS
25 25
20 20
15 15
10 10
5 5
0 0
1997 1999 2001 2003 2005 2007 2009 1997 1999 2001 2003 2005 2007 2009
-5 -5
Source: Eurostat.
Note: Bulgaria is excluded in 1997. Lines: unweighted average. Shaded areas: maximum-
minimum.
4
Macroeconomic background in CEE
Current account balance
(percentage of GDP)
HARD PEGS FLOATERS
5 5
0 0
1997 1999 2001 2003 2005 2007 2009 1997 1999 2001 2003 2005 2007 2009
-5 -5
-10 -10
-15 -15
-20 -20
-25 -25
Source: Eurostat.
Note: Lines: unweighted average. Shaded areas: maximum-minimum.
5
Macroeconomic background in CEE
General government balance
(percentage of GDP)
HARD PEGS FLOATERS
6 6
4 4
2 2
0 0
1997 1999 2001 2003 2005 2007 2009 1997 1999 2001 2003 2005 2007 2009
-2 -2
-4 -4
-6 -6
-8 -8
-10 -10
-12 -12
Source: Eurostat.
Note: Lines: unweighted average. Shaded areas: maximum-minimum.
6
The enlargement process
(as stipulated in the Treaty)
Optional: Adoption
ERM II ERM II membership
Pre-ERM II phase membership Technical preparations
of the
euro
Accession to Assessment of convergence,
Entry into ERM II formal decision on entry and
the EU
conversion rate
7
The enlargement process
• Every second year, or at the request of a country, the
ECB and the European Commission report on the state
of convergence in their Convergence Reports
• Case-by-case examination based on the convergence
criteria and the principle of equal treatment
• Based on such examinations and on a proposal by the
Commission, the (ECOFIN) Council decides which
countries fulfil the conditions needed for adopting the
euro
• The Council will also decide the conversion rate at which
the national currency will be replaced by the euro (based
on a proposal by the Commission and after consulting
the ECB)
8
9
Convergence criteria
• There are 4 convergence (Maastricht) criteria for
examining economic convergence
– Price stability
– Fiscal position (general government deficit and
debt)
– Exchange rate
– Long-term interest rate
• In addition, “legal convergence” (i.e. compatibility of
national legislation) is examined
10
Convergence criteria – general rules
• A number of general rules are used in the application
of these criteria
– Criteria are strictly interpreted and applied
– Criteria constitute coherent and integrated
approach (no hierarchy)
– Criteria must be met on the basis of hard data
– Application of criteria should be consistent,
transparent and simple
– Convergence must be achieved on a sustainable
basis and not just at given point in time.
11
Convergence criteria – price stability
The criterion on price stability
“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”
– Reference value: average HICP inflation rate of, at most, three
best performing EU Member States + 1.5 percentage points
12
The state of economic convergence – price stability
H ICP inflation
(average annual percentage change)
May 2008 CR May 2010 CR Reference value May 2010 CR (1.0%)
14 14
12.3
12 12
10 9.4 10
8.3
7.4 7.5
8 8
5.9
6 4.8 5.0 6
4.4
3.9
4 3.2 4
-0.7 1.7 2.0 2.0 2.1
2 0.1 0.3 2
0 0
Estonia Latvia Czech Rep. Bulgaria Lithuania Sweden Poland Hungary Romania
-2 -2
Source: Eurostat. The reference value was 3.2% in May 2008.
13
Convergence criteria –
government budgetary position
The criterion on the government budgetary position
“the sustainability of the government financial
position…will be apparent from having achieved a
budgetary position without a deficit that is excessive…”
– Reference value: the ratio of the government deficit to
GDP should not exceed 3%.
(unless the ratio has declined substantially and come close to the reference value, or
the excess over the reference value is only exceptional and temporary and the ratio
remains close to the reference value)
– Reference value: the ratio of government debt to GDP
should not exceed 60%.
(unless the ratio is sufficiently diminishing and approaching the reference value)
14
The state of economic convergence –
government balances
General government surplus (+) or deficit (-)
(percentage of GDP)
May 2008 CR May 2010 CR Reference value (-3%)
4 3.5 3.4 4
2.8
2 2
0.0
0 0
-0.5
-2 -1.2 -2
-1.7 -2.0
-1.6 -2.5
-4 -4
-3.9 -4.0
-6 -6
-5.5 -5.9
-8 -7.1 -8
-8.3
-10 -8.9 -9.0 -10
Sweden Estonia Bulgaria Hungary Czech Rep. Poland Romania Lithuania Latvia
Source: Eurostat. The reference year in the May 2008 CR was 2007 and in the May 2010 CR it is 2009.
15
The state of economic convergence –
government debt
General government gross debt
(percentage of GDP)
90 May 2008 CR May 2010 CR Reference value (60%) 90
78.3
80 80
70 66.0 70
60 60
51.0
50 45.2 50
40.6 42.3
40 35.4 36.1 40
29.3 28.7
30 23.7 30
18.2 17.3
20 14.8 20
13.0
9.7
10 7.2 10
3.4
0 0
Estonia Bulgaria Romania Lithuania Czech Rep. Latvia Sweden Poland Hungary
Source: Eurostat. The reference year in the May 2008 CR was 2007; in the May 2010 CR it is 2009.
16
Convergence criteria – exchange rate
The exchange rate criterion
“The observance of the normal fluctuation margins provided for the
exchange rate mechanism of the EMS, for at least two years, without
devaluing…”
– The ECB examines whether a Member State has
participated in ERM II for at least two years prior to the
examination without severe tensions, in particular, without
devaluing its currency against the euro
– Focus is put on the exchange rate being close to the central
rate against the euro, while also taking into account factors
that may have led to an appreciation
17
The state of economic convergence – ERM II
Participation in ERM II with effect from
Bulgaria -
Czech Republic -
Estonia 28 June 2004
Latvia 2 May 2005
Lithuania 28 June 2004
Hungary -
Poland -
Romania -
Sweden -
18
Convergence criteria – long-term interest rate
• The long-term interest rate criterion
“The durability of convergence achieved by the Member State and of its
participation in the exchange rate mechanism of the EMS being reflected in
the long-term interest rate levels”
– Reference value: average of long-term interest rates in the
three best performing EU Member States in terms of price
stability + 2 percentage points.
19
The state of economic convergence –
long-term interest rates
Long-term interest rates
(in percentages, annual average)
May 2008 CR May 2010 CR Reference value May 2010 CR (6.0%)
14 12.7 14
12.1
12 12
10 9.4 10
8.4
8 6.9 6.9 7.1 8
5.7 6.1
6 5.4 6
4.2 4.5 4.7 4.7 4.6
4 3.3 4
2 2
0 0
Sweden Czech Rep. Poland Bulgaria Hungary Romania Lithuania Latvia
Sources: Eurostat and ECB. Estonia does not have a harmonised long-term interest rate. The reference value was 6.5% in May 2008.
20
Estonia – long-term interest rates
• The Estonian financial system is characterised by the
absence of a well-developed market for long-term
debt securities denominated in Estonian kroons.
• A broad-based analysis of financial markets has been
conducted taking into account a variety of relevant
indicators.
• Developments in financial markets over the reference
period suggest a mixed assessment.
• A number of indicators show that market participants
had significant concerns regarding the sustainability of
convergence in Estonia. These concerns were
especially pronounced during the peak of the global
crisis.
21
Estonia - key recommendations
• The Estonian authorities should aim at achieving a fiscal surplus in line
with their medium term strategy and be ready to take counter-cyclical
measures if needed to counter the risk of overheating.
• Wage developments need to respond more to changes in labour
productivity growth, labour market conditions and developments in
competitor countries.
• Structural policies should support the reallocation of domestic
resources from the non-tradable to the tradable sectors and from low
wage-based to high value-added activities
• Financial sector policies should be geared towards preventing excessive
credit growth in the future.
• In order to prevent the reoccurrence of macroeconomic imbalances,
which are then followed by a period of difficult adjustment, it is crucial
to strengthen policy tools to contain booms in domestic demand that
may be related to further episodes of strong capital inflows or overly
optimistic expectations about future growth prospects.
22
Thank you for your attention!
23
