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Convergence Report 2004 Convergence Report 2004 European Central Bank European Convergence Report 2004 CONVERGENCE REPORT 2004 CONVERGENCE REPORT 2004 EUROPEAN CENTRAL BANK EUROPEAN CONVERGENCE REPORT 2004 In 2004 all ECB publications will feature a motif taken from the €100 banknote. © European Central Bank, 2004 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.int Fax +49 69 1344 6000 Telex 411 144 ecb d 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 6 October 2004. ISSN 1725-9312 (print) ISSN 1725-9525 (online) CONTENTS CONTENTS INTRODUCTION AND EXECUTIVE SUMMARY 5 ANNEX 1 EXAMINATION OF ECONOMIC CONVERGENCE 7 STATISTICAL METHODOLOGY OF 1.1 Framework for analysis 7 CONVERGENCE INDICATORS 209 1.2 The state of economic CHAPTER II 215 convergence 14 Table A COMPATIBILITY OF NATIONAL LEGISLATION WITH Economic indicators of THE TREATY convergence 22 Country assessments 217 1 Czech Republic 217 2 COMPATIBILITY OF NATIONAL LEGISLATION WITH THE TREATY 23 2 Estonia 220 2.1 Introduction 23 3 Cyprus 221 2.2 Scope of adaptation 24 4 Latvia 223 2.3 Independence of NCBs 25 5 Lithuania 225 2.4 Legal integration of NCBs into 6 Hungary 227 the Eurosystem 30 7 Malta 228 2.5 Compatibility of national legislation 8 Poland 230 with the Treaty and the Statute 32 9 Slovenia 232 10 Slovakia 234 3 SUMMARIES COUNTRY BY COUNTRY 33 11 Sweden 235 CHAPTER I 51 GLOSSARY 239 EXAMINATION OF ECONOMIC CONVERGENCE 1 Czech Republic 53 2 Estonia 67 3 Cyprus 79 4 Latvia 95 5 Lithuania 109 6 Hungary 123 7 Malta 137 8 Poland 151 9 Slovenia 165 10 Slovakia 179 11 Sweden 195 ECB Convergence report 2004 3 ABBREVIATIONS COUNTRIES BE Belgium LU Luxembourg CZ Czech Republic HU Hungary DK Denmark MT Malta DE Germany NL Netherlands EE Estonia AT Austria GR Greece PL Poland ES Spain PT Portugal FR France SI Slovenia IE Ireland SK Slovakia IT Italy FI Finland CY Cyprus SE Sweden LV Latvia UK United Kingdom LT Lithuania OTHERS BIS Bank for International Settlements b.o.p. balance of payments BPM5 IMF Balance of Payments Manual (5th edition) CD certificate of deposit c.i.f. cost, insurance and freight at the importer’s border CPI Consumer Price Index ECB European Central Bank EDP excessive deficit procedure EER effective exchange rate EMI European Monetary Institute EMU Economic and Monetary Union ERM Exchange rate machanism ESA 95 European System of Accounts 1995 ESCB European System of Central Banks EU European Union EUR euro f.o.b. free on board at the exporter’s border GDP gross domestic product HICP Harmonised Index of Consumer Prices HWWA Hamburg Institute of International Economics ILO International Labour Organization IMF International Monetary Fund MFI monetary financial institution NACE Rev. 1 Statistical classification of economic activities in the European Community NCB national central bank OECD Organisation for Economic Cooperation and Development PPI Producer Price Index SITC Rev. 3 Standard International Trade Classification (revision 3) ULCM unit labour costs in manufacturing ULCT unit labour costs in the total economy In accordance with Community practice, the EU countries are listed in this report using the alphabetical order of the country names in the national languages. ECB Convergence report 4 2004 INTRODUCTION AND EXECUTIVE SUMMARY INTRODUCTION In this year’s Convergence Report, produced the achievement of economic and monetary in accordance with Article 122 (2) of the union”. The same mandate has been given to Treaty establishing the European Community the European Commission, and the two (the Treaty), the European Central Bank reports have been submitted to the EU Council (ECB) uses the framework applied in the in parallel. Convergence Reports produced by the European Monetary Institute (EMI) in March The assessment of the convergence process 1998 and the ECB in May 2000 and 2002 to crucially hinges upon the quality and integrity examine, with regard to 11 noneuro area of the underlying statistics. The compilation Member States, whether a high degree of and reporting of statistics, particularly sustainable convergence has been achieved and government finance statistics, must not be to gauge compliance with the statutory vulnerable to political and electoral cycles. requirements to be fulfilled for national central Countries are invited to consider the quality banks (NCBs) to become an integral part of the and integrity of their statistics as a priority Eurosystem. matter, to ensure that a proper system of checks and balances is in place when compiling The Member States examined by this report these statistics, and to apply minimum are: the Czech Republic, Estonia, Cyprus, standards in the domain of statistics. These Latvia, Lithuania, Hungary, Malta, Poland, standards should reinforce the independence, Slovenia, Slovakia and Sweden. integrity and accountability of the national statistical institutes and also help to inspire Following the introduction of the euro on 1 confidence in the quality of fiscal statistics. January 1999 in 11 Member States and on 1 The standards and their application may be January 2001 in Greece, and the enlargement reviewed on the occasion of the next of the European Union (EU) with ten new Convergence Report. Member States on 1 May 2004, 13 Member States are not yet full participants in Economic This Introduction and Executive Summary and Monetary Union (EMU). Two of these continues with an overview of the key aspects Member States, namely Denmark and the and results of the examination of economic United Kingdom, have a special status. In and legal convergence. A more detailed accordance with the terms of the relevant analysis follows in Chapter I and II. Chapter I protocols, annexed to the Treaty, these examines the state of economic convergence in countries gave notification that they would not each of the 11 Member States under review. participate in Stage Three of EMU on 1 Chapter II examines the compatibility between January 1999. As a consequence, convergence each of these Member States’ national reports for these two Member States only have legislation, including the statutes of its NCB, to be provided if they so request. Since no such and Articles 108 and 109 of the Treaty and the request has been made, this year’s Statute of the ESCB. Convergence Report excludes these two countries. In producing this report, the ECB fulfils the requirements of Article 122 (2) in conjunction with Article 121 (1) 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 a Member State with a derogation “on the progress made in the fulfilment by the Member States of their obligations regarding ECB Convergence report 6 2004 1 EXAMINATION OF ECONOMIC CONVERGENCE INTRODUCTION AND EXECUTIVE 1.1 FRAMEWORK FOR ANALYSIS the country examinations elaborate on the SUMMARY sustainability of convergence. To examine the state of economic convergence in the 11 Member States under review, the In more detail, first, evidence is reviewed from ECB makes use of a common framework for a backwardlooking perspective, covering, in analysis which is applied on a countryby principle, the past eight years. This helps to country basis. The common framework is better determine the extent to which current based, first, on the Treaty provisions and their achievements are the result of genuine application by the ECB with regard to structural adjustments, which in turn should developments in prices, fiscal deficits and debt lead to a better assessment of the sustainability ratios, exchange rates and longterm interest of economic convergence. At the same time, rates, together with other factors. Second, it is due account must be taken of the fact that based on a range of additional backward and backdata for most new Member States may be forwardlooking economic indicators which heavily influenced by the transition these are considered to be useful for examining the countries have been passing through. Second, sustainability of convergence in greater detail. and to the extent appropriate, a forward Boxes 1 to 4 below briefly recall the provisions looking perspective is adopted. In this context, of the Treaty and provide methodological particular attention is drawn to the fact that details, which outline the application of these the sustainability of favourable economic provisions by the ECB. developments hinges critically on appropriate and lasting policy responses to existing and Furthermore, this report builds on principles future challenges. Overall, it is emphasised set out in previous reports published by the that ensuring the sustainability of economic EMI and the ECB. To ensure continuity and convergence depends both on the achievement equal treatment, the same principles are of a sound starting position and on the policies applied to the new Member States. In pursued after the adoption of the euro. particular, a number of guiding principles are used by the ECB in the application of the The common framework is subsequently convergence criteria. First, the individual applied individually to the 11 Member States. criteria are interpreted and applied in a strict These country examinations, which focus on manner. The rationale behind this principle is each Member State’s performance, should be that the main purpose of the criteria is to considered separately, in line with the ensure that only those Member States having provision of Article 121. economic conditions that are conducive to the maintenance of price stability and the viability With regard to price developments, the Treaty of the euro area can participate in it. Second, provisions and their application by the ECB the convergence criteria constitute a coherent are outlined in Box 1. and integrated package, and they must all be satisfied; the Treaty lists the criteria on an To allow a more detailed examination of the equal footing and does not suggest a hierarchy.
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