European Economy Convergence Report 2004 – Technical annex A Commission services working paper SEC(2004)1268 PROVISIONAL LAYOUT The definitive version will be published as European Economy No 6/2004 http://europa.eu.int/comm/economy_finance/publications/european_economy/convergencereports2004_en.htm Acknowledgements This paper was prepared in the Directorate-General for Economic and Financial Affairs under the supervision of Klaus Regling, Director-General, and Antonio J. Cabral, Deputy Director-General. The main contributors to the paper were Johan Baras, Sean Berrigan, Carsten Brzeski, Adriaan Dierx, Christine Gerstberger, Alexandr Hobza, Fabienne Ilzkovitz, Filip Keereman, Paul Kutos, Baudouin Lamine, João Nogueira Martins, Moises Orellana Pena, Lucio R. Pench, Jiri Plecity, Stéphanie Riso, Delphine Sallard, Charlotte Van Hooydonk, Johan Verhaeven and Joachim Wadefjord. Country-specific contributions were provided by Georg Busch, Juan Ramon Calaf Sole, Nathalie Darnaut, Per Eckefeldt, Luis Fau Sebastian, Barbara Kauffmann, Filip Keereman, Viktoria Kovacs, Carlos Martinez Mongay, Marek Mora, Willem Noë, Mateja Peternelj, José Luis Robledo Fraga, Agnieszka Skuratowicz, Siegfried Steinlein, Kristine Vlagsma, Helga Vogelmann and Ralph Wilkinson. Charlotte Van Hooydonk edited the paper. Statistical and technical assistance was provided by Vittorio Gargaro, Tony Tallon and André Verbanck. Contents 1. Introduction and overview.................................................................................................................1 1.1. Introduction................................................................................................................................. 1 1.2. Application of the criteria ........................................................................................................... 2 1.2.1. Legal compatibility ............................................................................................................................... 2 1.2.2. Price stability......................................................................................................................................... 3 1.2.3. Government budgetary position............................................................................................................ 5 1.2.4. Exchange rate stability .......................................................................................................................... 5 1.2.5. Long-term interest rate convergence..................................................................................................... 6 1.2.6. Additional factors.................................................................................................................................. 6 2. Compatibility of national legislation with the Treaty as well as with the Statute of the European System of Central Banks and of the European Central Bank .......................................9 2.1. Introduction................................................................................................................................. 9 2.2. Scope of necessary adaptation of national legislation................................................................ 9 2.2.1. General.................................................................................................................................................. 9 2.2.2. Objectives ........................................................................................................................................... 10 2.2.3. Independence ...................................................................................................................................... 10 2.2.4. Integration of NCBs in the ESCB and other legislation...................................................................... 11 2.2.5. Prohibition of monetary financing ...................................................................................................... 13 2.2.6. Legislation outside the scope of Article 109 of the Treaty.................................................................. 13 2.3. Timing of adaptation................................................................................................................. 13 2.4. Situation in the Member States ................................................................................................. 14 2.4.1. Czech Republic ................................................................................................................................... 14 2.4.1.1. Current legal situation ............................................................................................................... 14 2.4.1.2. Assessment of compatibility...................................................................................................... 15 2.4.2. Estonia................................................................................................................................................. 15 2.4.2.1. Current legal situation ............................................................................................................... 15 2.4.2.2. Assessment of compatibility...................................................................................................... 16 2.4.3. Cyprus................................................................................................................................................. 16 2.4.3.1. Current legal situation ............................................................................................................... 16 2.4.3.2. Assessment of compatibility...................................................................................................... 17 2.4.4. Latvia .................................................................................................................................................. 17 2.4.4.1. Current legal situation ............................................................................................................... 17 2.4.4.2. Assessment of compatibility...................................................................................................... 17 2.4.5. Lithuania ............................................................................................................................................. 18 2.4.5.1. Current legal situation ............................................................................................................... 18 2.4.5.2. Assessment of compatibility...................................................................................................... 18 2.4.6. Hungary............................................................................................................................................... 18 2.4.6.1. Current legal situation ............................................................................................................... 18 2.4.6.2. Assessment of compatibility...................................................................................................... 19 2.4.7. Malta ................................................................................................................................................... 19 2.4.7.1. Current legal situation ............................................................................................................... 19 2.4.7.2. Assessment of compatibility...................................................................................................... 20 2.4.8. Poland ................................................................................................................................................. 20 2.4.8.1. Current legal situation ............................................................................................................... 20 2.4.8.2. Assessment of compatibility...................................................................................................... 21 2.4.9. Slovenia............................................................................................................................................... 21 2.4.9.1. Current legal situation ............................................................................................................... 21 2.4.9.2. Assessment of compatibility...................................................................................................... 21 2.4.10. Slovakia.......................................................................................................................................... 22 2.4.10.1. Current legal situation ............................................................................................................... 22 2.4.10.2. Assessment of compatibility...................................................................................................... 22 2.4.11. Sweden ........................................................................................................................................... 22 2.4.11.1. Current legal situation ............................................................................................................... 22 2.4.11.2. Assessment of compatibility...................................................................................................... 23 3. Price stability ....................................................................................................................................27 3.1. The price stability criterion .......................................................................................................27