Box: Conditions for Joining the European Monetary Union

To participate in the European Monetary Union EU, member states are required to meet the following economic conditions set out in the convergence criteria:

• Sound finances. The public sector budgetary deficit cannot exceed 3 percent of GDP and the public sector gross debt cannot exceed 60 percent of GDP.

• Price stability. Inflation during the year prior to examination by the Commission and the European Central Bank should not exceed inflation in the three EU countries with the lowest inflation by more than 1.5 percent.

• Stable exchange rate. Member states must demonstrate that their currencies have remained within the normal fluctuation margins provided for by the exchange rate mechanism without devaluing in the two years prior to examination.

Member states must also adapt their legislation so that their central banks can be incorporated in and carry out the tasks assigned to the common system of central banks under the European Community Treaty and the Protocol on the Statute of the European System of Central Banks (ESCB), the main instruments for administering the European Monetary Union. This means that the countries’ central banks must be independent in relation to political institutions. When a member state meets these requirements, the EU Council of Ministers determines whether a particular member state can participate in the Monetary Union.

If a member country does not meet the criteria it is granted a derogation, that is, it becomes a nonparticipating member. It will be exempted from the introduction of the common currency, the implementation of a common monetary policy, and the rights and obligations associated with the ESCB.