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Convergence Report June 2014 CONVERGENCE REPORT XXX XXXXXX 2014 JUNE 2014 EN CONVERGENCE REPORT JUNE 2014 In 2014 all ECB publications feature a motif taken from the €20 banknote. © European Central Bank, 2014 Address Kaiserstrasse 29 60311 Frankfurt am Main Germany Postal address Postfach 16 03 19 60066 Frankfurt am Main Germany Telephone +49 69 1344 0 Website http://www.ecb.europa.eu Fax +49 69 1344 6000 All rights reserved. Reproduction for educational and non-commercial purposes is permitted provided that the source is acknowledged. The cut-off date for the statistics included in this issue was 15 May 2014. ISSN 1725-9525 (online) ISSN 1725-9525 (epub) ISBN 978-92-899-1324-9 (online) ISBN 978-92-899-1346-1 (epub) EU catalogue number QB-AD-14-001-EN-N (online) EU catalogue number QB-AD-14-001-EN-E (epub) CONTENTS CONTENTS 1 INTRODUCTION 5 2 FRAMEWORK FOR ANALYSIS 7 2.1 Economic convergence 7 2.2 Compatibility of national legislation with the Treaties 18 3 THE STATE OF ECONOMIC CONVERGENCE 37 4 COUNTRY SUMMARIES 51 4.1 Bulgaria 51 4.2 Czech Republic 53 4.3 Croatia 55 4.4 Lithuania 57 4.5 Hungary 59 4.6 Poland 61 4.7 Romania 63 4.8 Sweden 65 5 EXAMINATION OF ECONOMIC CONVERGENCE 67 5.1 Bulgaria 67 5.2 Czech Republic 85 5.3 Croatia 103 5.4 Lithuania 121 5.5 Hungary 141 5.6 Poland 161 5.7 Romania 179 5.8 Sweden 197 5.9 Statistical methodology of convergence indicators 213 6 EXAMINATION OF COMPATIBILITY OF NATIONAL LEGISLATION WITH THE TREATIES 231 6.1 Bulgaria 231 6.2 Czech Republic 235 6.3 Croatia 239 6.4 Lithuania 240 6.5 Hungary 245 6.6 Poland 250 6.7 Romania 254 6.8 Sweden 259 GLOSSARY 265 ECB Convergence Report June 2014 3 ABBREVIATIONS COUNTRIES OTHERS BE Belgium BIS Bank for International Settlements BG Bulgaria CPI Consumer Price Index CZ Czech Republic DG ECFIN Directorate General for Economic and DK Denmark Financial Affairs, European Commission DE Germany ECB European Central Bank EE Estonia EDP excessive deficit procedure IE Ireland EER effective exchange rate GR Greece EMI European Monetary Institute ES Spain EMU Economic and Monetary Union FR France ERM exchange rate mechanism HR Croatia ESA 95 European System of Accounts 1995 IT Italy ESCB European System of Central Banks CY Cyprus ESRB European Systemic Risk Board LV Latvia EU European Union LT Lithuania EUR euro LU Luxembourg GDP gross domestic product HU Hungary HICP Harmonised Index of Consumer Prices MT Malta i.i.p. international investment position NL Netherlands ILO International Labour Organization AT Austria IMF International Monetary Fund PL Poland MFI monetary financial institution PT Portugal MIP macroeconomic imbalance procedure RO Romania NCB national central bank SI Slovenia OECD Organisation for Economic Co-operation SK Slovakia and Development FI Finland SSM Single Supervisory Mechanism SE Sweden TSCG Treaty on Stability, Coordination and UK United Kingdom Governance in the Economic and US United States Monetary Union In accordance with EU practice, the EU Member States are listed in this report using the alphabetical order of the country names in the national languages. CONVENTIONS USED IN THE TABLES “-” data do not exist/data are not applicable “.” data are not yet available ECB Convergence Report 4 June 2014 1 INTRODUCTION 1 INTRODUCTION The euro was introduced on 1 January 1999 in 11 EU Member States. Since then, seven other EU Member States have adopted the single currency, the most recent being Latvia on 1 January 2014. Following Croatia’s accession to the EU on 1 July 2013, there are ten EU countries that do not yet participate fully in EMU, i.e. they have not yet adopted the euro. Two of these, Denmark and the United Kingdom, gave notification that they would not participate in Stage Three of EMU. As a consequence, Convergence Reports only have to be provided for these two countries if they so request. Given the absence of such a request from either country, this report examines eight countries: Bulgaria, the Czech Republic, Croatia, Lithuania, Hungary, Poland, Romania and Sweden. All eight countries are committed under the Treaty on the Functioning of the European Union (hereinafter the “Treaty”)1 to adopt the euro, which implies that they must strive to fulfil all the convergence criteria. In producing this report, the ECB fulfils its requirement under Article 140 of the Treaty to report to the Council of the European Union (EU Council) at least once every two years or at the request of an EU Member State with a derogation “on the progress made by the Member States with a derogation in fulfilling their obligations regarding the achievement of economic and monetary union”. The eight countries under review in this report have therefore been examined as part of this regular two-year cycle. The same mandate has been given to the European Commission, which has also prepared a report, and both reports are being submitted to the EU Council in parallel. In this report, the ECB uses the framework applied in its previous Convergence Reports. It examines, for the eight countries concerned, whether a high degree of sustainable economic convergence has been achieved, whether the national legislation is compatible with the Treaties and the Statute of the European System of Central Banks and of the European Central Bank (Statute), and whether the statutory requirements are fulfilled for the relevant NCB to become an integral part of the Eurosystem. In this report, Lithuania is assessed in more depth than the other countries under review, since the Lithuanian authorities have on various occasions announced their intention to adopt the euro as of 1 January 2015. The examination of the economic convergence process is highly dependent on the quality and integrity of the underlying statistics. The compilation and reporting of statistics, particularly government finance statistics, must not be subject to political considerations or interference. EU Member States have been invited to consider the quality and integrity of their statistics as a matter of high priority, to ensure that a proper system of checks and balances is in place when these statistics are compiled, and to apply minimum standards in the domain of statistics. These standards are of the utmost importance in reinforcing the independence, integrity and accountability of the national statistical institutes and in supporting confidence in the quality of government finance statistics (see Section 9 of Chapter 5). Moreover, from 4 November 2014 onwards 2 each country whose derogation is abrogated will join the Single Supervisory Mechanism (SSM) at the latest on the date on which it adopts the euro. From that date, all SSM-related rights and obligations apply to that country. It is, therefore, of utmost importance that it makes the necessary preparations. In this respect, the ECB attaches great importance to the comprehensive assessment of credit institutions, including the balance 1 See also the clarification of the terms “Treaty” and “Treaties” in the Glossary. 2 This is the date when the ECB assumes the tasks conferred on it by Council Regulation (EU) No 1024/2013 of 15 October 2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions, Article 33(2). ECB Convergence Report June 2014 5 sheet assessment that it must carry out before the assumption of its tasks. This is an assessment of the banking system in the Member States participating in the SSM and is carried out by the ECB in cooperation with the national competent authorities of the participating Member States. This assessment, which is not the subject of this report, is to be concluded prior to the assumption by the ECB of its supervisory responsibilities. It includes an asset quality review and a stress test. The objective is to foster transparency, repair balance sheets where needed and enhance confidence in the banking sector. The banking system of any Member State joining the euro area and therefore joining the SSM after the date for the commencement of supervision will be subject to a comprehensive assessment.3 This report is structured as follows. Chapter 2 describes the framework used for the examination of economic and legal convergence. Chapter 3 provides a horizontal overview of the key aspects of economic convergence. Chapter 4 contains the country summaries, which provide the main results of the examination of economic and legal convergence. Chapter 5 examines in more detail the state of economic convergence in each of the eight EU Member States under review and provides an overview of the convergence indicators and the statistical methodology used to compile them. Finally, Chapter 6 examines the compatibility of the national legislation of the Member States under review, including the statutes of their NCBs, with Articles 130 and 131 of the Treaty. 3 See recital 10 of Regulation ECB/2014/17 of the European Central Bank of 16 April 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the European Central Bank and national competent authorities and with national designated authorities (SSM Framework Regulation). ECB Convergence Report 6 June 2014 2 FRAMEWORK FOR ANALYSIS 2 FRAMEWORK FOR 2.1 ECONOMIC CONVERGENCE ANALYSIS To examine the state of economic convergence in EU Member States seeking to adopt the euro, the ECB makes use of a common framework for analysis. This common framework, which has been applied in a consistent manner throughout all EMI and ECB Convergence Reports, is based, first, on the Treaty provisions and their application by the ECB with regard to developments in prices, fiscal balances and debt ratios, exchange rates and long-term interest rates, as well as in other factors relevant to economic integration and convergence.
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