EN EUROPEAN CENTRAL BANK CONVERGENCE REPORT MAY 2010 CONVERGENCE REPORT CONVERGENCE M A Y 2010 CONVERGENCE REPORT MAY 2010 In 2010 all ECB publications feature a motif taken from the €500 banknote. © European Central Bank, 2010 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 23 April 2010. ISSN 1725-9312 (print) ISSN 1725-9525 (online) CONTENTS CONTENTS 1 INTRODUCTION 5 6 EXAMINATION OF COMPATIBILITY OF NATIONAL LEGISLATION WITH 2 FRAMEWORK FOR ANALYSIS 7 THE TREATIES 235 2.1 Economic convergence 7 6.1 Bulgaria 235 2.2 Compatibility of national 6.2 Czech Republic 238 legislation with the Treaties 15 6.3 Estonia 242 6.4 Latvia 243 3 THE STATE OF ECONOMIC 6.5 Lithuania 246 CONVERGENCE 31 6.6 Hungary 248 6.7 Poland 252 4 COUNTRY SUMMARIES 39 6.8 Romania 256 4.1 Bulgaria 39 6.9 Sweden 261 4.2 Czech Republic 40 4.3 Estonia 42 GLOSSARY 265 4.4 Latvia 44 4.5 Lithuania 46 4.6 Hungary 47 4.7 Poland 49 4.8 Romania 50 4.9 Sweden 52 5 EXAMINATION OF ECONOMIC CONVERGENCE 55 5.1 Bulgaria 55 5.2 Czech Republic 73 5.3 Estonia 89 5.4 Latvia 111 5.5 Lithuania 131 5.6 Hungary 149 5.7 Poland 167 5.8 Romania 185 5.9 Sweden 203 ANNEX STATISTICAL METHODOLOGY OF CONVERGENCE INDICATORS 219 ECB Convergence Report May 2010 3 ABBREVIATIONS COUNTRIES BE Belgium LU Luxembourg BG Bulgaria HU Hungary CZ Czech Republic MT Malta DK Denmark NL Netherlands DE Germany AT Austria EE Estonia PL Poland IE Ireland PT Portugal GR Greece RO Romania ES Spain SI Slovenia FR France 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 certifi cate of deposit CPI Consumer Price Index ECB European Central Bank EDP excessive defi cit procedure EER effective exchange rate EMI European Monetary Institute EMU Economic and Monetary Union ERM exchange rate mechanism ESA 95 European System of Accounts 1995 ESCB European System of Central Banks EU European Union EUR euro GDP gross domestic product HICP Harmonised Index of Consumer Prices ILO International Labour Organization IMF International Monetary Fund MFI monetary fi nancial institution NCB national central bank OECD Organisation for Economic Co-operation and Development PPI Producer Price Index ULCM unit labour costs in manufacturing ULCT unit labour costs in the total economy In accordance with EU 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 May 2010 1 INTRODUCTION 1 INTRODUCTION Since the introduction of the euro in 11 Member review. This is due to the fact that the States on 1 January 1999, fi ve additional Member Estonian authorities have on various occasions States have joined the euro area. At the time of announced their intention to adopt the euro as of this report, 16 Member States have adopted the 1 January 2011. euro, the most recent one being Slovakia on 1 January 2009. This implies that 11 Member The examination of the economic convergence States are at present not full participants in process is highly dependent on the quality EMU and have not yet adopted the euro. Two of and integrity of the underlying statistics. these Member States, namely Denmark and the The compilation and reporting of statistics, United Kingdom, gave notifi cation that they particularly government fi nance statistics, must would not participate in Stage Three of EMU. not be subject to political considerations or As a consequence, convergence reports for these interference. Member States have been invited two Member States only have to be provided if to consider the quality and integrity of their they so request. In the absence of such a request statistics as a matter of high priority, to ensure from either country, this report examines that a proper system of checks and balances is nine countries: Bulgaria, the Czech Republic, in place when compiling these statistics, and Estonia, Latvia, Lithuania, Hungary, Poland, to apply minimum standards in the domain of Romania and Sweden. All nine countries are statistics. These standards are of the utmost committed by the Treaty 1 to adopt the euro, importance in reinforcing the independence, which implies that they must strive to fulfi l all integrity and accountability of the national the convergence criteria. statistical institutes and in helping to support confi dence in the quality of government fi nance In producing this report, the ECB fulfi ls the statistics (see the statistical section). requirement of Article 140 of the Treaty to report to the Council of the European Union (Council) This report is structured as follows. Chapter 2 at least once every two years or at the request describes the framework used for the of a Member State with a derogation “on the examination of economic and legal convergence. progress made by the Member States with a Chapter 3 provides a horizontal overview of the derogation in fulfi lling their obligations regarding key aspects of economic convergence. Chapter 4 the achievement of economic and monetary contains the country summaries, which provide union”. The same mandate has been given to the the main results of the examination of economic European Commission, which has also prepared a and legal convergence. Chapter 5 examines the report, and the two reports are being submitted to state of economic convergence in each of the the Council in parallel. The nine countries under nine Member States under review in more detail review in this report are examined in the context and provides an overview of the statistical of the regular two-year cycle. methodology of convergence indicators. Finally, Chapter 6 examines the compatibility of these In this report, the ECB uses the framework Member States’ national legislation, including applied in its previous convergence reports. the statutes of their NCB, with Articles 130 and It examines, for the nine countries concerned, 131 of the Treaty and with the Statute.2 whether a high degree of sustainable economic convergence has been achieved, whether the national legislation is compatible with the Treaty and whether the statutory requirements are fulfi lled for NCBs to become an integral part of the Eurosystem. 1 Treaty on the Functioning of the European Union, as defi ned in the Glossary (see “Treaty of Lisbon”). In this report, Estonia is assessed in somewhat 2 Statute of the European System of Central Banks and of the more depth than the other countries under European Central Bank, as defi ned in the Glossary. ECB Convergence Report May 2010 5 2 FRAMEWORK FOR ANALYSIS 2 FRAMEWORK FOR 2.1 ECONOMIC CONVERGENCE a backward-looking perspective, covering, ANALYSIS in principle, the past ten years. This helps to To examine the state of economic convergence better determine the extent to which current in the nine Member States under review, the achievements are the result of genuine structural ECB makes use of a common framework for adjustments, which in turn should lead to a better analysis which is applied to each country in assessment of the sustainability of economic turn. The common framework is based, fi rst, on convergence. the Treaty provisions and their application by the ECB with regard to developments in prices, In addition, and to the extent appropriate, a fi scal balances and debt ratios, exchange rates forward-looking perspective is adopted. In this and long-term interest rates, together with other context, particular attention is drawn to the fact relevant factors. Second, it is based on a range that the sustainability of favourable economic of additional backward and forward-looking developments hinges critically on appropriate economic indicators which are considered to and lasting policy responses to existing and be useful for examining the sustainability of future challenges. Overall, it is emphasised convergence in greater detail. Boxes 1 to 4 below that ensuring the sustainability of economic briefl y recall the provisions of the Treaty and convergence depends both on the achievement provide methodological details which outline the of a sound starting position and on the policies application of these provisions by the ECB. pursued after the adoption of the euro. This report builds on principles set out in The common framework is applied individually previous reports published by the ECB (and prior to the nine Member States under review. to this by the European Monetary Institute) in These country examinations, which focus on order to ensure continuity and equal treatment. each Member State’s performance, should be In particular, a number of guiding principles considered separately, in line with the provisions are used by the ECB in the application of the of Article 140 of the Treaty. convergence criteria. First, the individual criteria are interpreted and applied in a strict manner. The cut-off date for the statistics included in The rationale behind this principle is that the this Convergence Report was 23 April 2010. main purpose of the criteria is to ensure that only The statistical data used in the application of the those Member States having economic conditions convergence criteria have been provided by the that are conducive to the maintenance of price European Commission (see also the statistical stability and the coherence of the euro area can section and the tables and charts), in cooperation participate in it.