This emerged from the Convergence Report 2004 adopted yesterday by the Commission, which analysed the progress made by 11 countries towards the requirement on EMU. Apart from Malta, the countries under scrutiny were the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Poland, Slovenia, Slovakia and Sweden.
All the countries, apart from Sweden, joined the EU on 1 May 2004.
The report examined whether the member states without an opt-out meet the convergence criteria on price stability, the government budgetary position, exchange rates and interest rates and whether
they ensure compatibility of their legislation with that required for euro membership.
The report indicated that none of the countries examined fulfilled all conditions for adopting the euro at this stage.
According to EU Commissioner Joaquin Almunia, under whose responsibility the report has been drafted, “satisfying the accession criteria has required a huge effort by all new member states. A lot of progress has been made with convergence but the road to euro membership requires further efforts. I hope that the next report in 2006 provides a good incentive for further progress.”
In its comments about Malta, the Commission said that as regards central bank integration into the European System of Central Banks at the time of euro adoption, legislation in Malta, in particular the Central Bank of Malta Act, is not fully compatible with Article 109 of the Treaty and the ESCB/European Central Bank Statute.
The average inflation rate in Malta during the 12 months to August 2004 was 2.6 per cent. Malta does not fulfil the criterion on price stability, the report said.
Malta is also at present the subject of a decision on the existence of an excessive deficit. The general government deficit was 9.7 per cent of GDP in 2003 and government debt was 71.1 per cent of GDP. Malta therefore does not fulfil the criterion on the government budgetary position.
The report added that the Maltese lira, which is pegged to a basket of currencies in which the euro has a weight of 70 per cent, is not participating in ERM II. Malta again does not fulfil the exchange rate criterion.
The average long-term interest rate in Malta in the year to August 2004 was 4.7 per cent and, in this case, Malta fulfils the criterion on the convergence of long-term interest rates. Long-term interest rate differentials with the euro area were around 0.4 percentage points in the period January-August 2004.
In the light of this assessment the Commission concludes that there should be no change in the status of Malta as a “member state with a derogation”.
In general, five countries had inflation rates below the reference value (2.4 per cent in August 2004), namely the Czech Republic, Estonia, Cyprus, Lithuania and Sweden, and hence fulfil the criterion.
The criterion on the government budgetary position is met when a country is not the subject of a Council decision on the existence of an excessive deficit. At present, five of the 11 Member States examined, namely Estonia, Latvia, Lithuania, Slovenia and Sweden, fulfil the criterion.
The Treaty refers to the exchange rate criterion as the observance of the normal fluctuation margins of the exchange rate mechanism (ERM) of the European Monetary System for at least two years without severe tensions and in particular without devaluing against the euro. While the three currencies participating in ERM II since 28 June 2004 have been stable vis-à-vis the euro, none of the countries examined has participated in ERM II for the required period.
Long-term interest rates were below the reference value (6.4 per cent in August 2004) in the Czech Republic, Cyprus, Latvia, Lithuania, Malta, Slovenia, Slovakia and Sweden.
These eight countries were found to meet the interest rate criterion. For Estonia, where no long-term government bonds or comparable securities are available, there are no reasons to conclude that Estonia would not fulfil the long-term interest rate criterion.