The convergence criteria are the economic requirements which the EU countries must meet to participate in the third stage of EMU and thus introduce the euro. It is on the basis of an assessment of whether the convergence criteria have been met that the EU countries decide whether a country can participate in the euro.
The convergence criteria are listed in Article 121 of the Treaty and specified in more detail in a protocol to the Treaty (Protocol No 21 on the convergence criteria). In order of priority, the convergence criteria may be described as follows:
1. Requirement of price stability
This requirement means that a Member State’s rate of inflation (consumer price increase) must not exceed the inflation rate in the three Member States which have the lowest inflation by more than 1.5 percentage points.
2. Requirement of sustainable public finances
There must not be an excessive deficit in the public budget. This means that as a general rule the annual public deficit must not exceed 3% of gross domestic product. Exceptionally, this may be accepted if the deficit has been reduced substantially and continuously and has reached a level that is close to 3%, or if a small breach of the 3% level is exceptional and temporary.
3. Requirement with regard to public debt
The ratio of gross public debt to gross domestic product must as a general rule not exceed 60% at the end of the preceding financial year. An exception may be made if the deficit has diminished sufficiently and is approaching 60% at a satisfactory pace.
4. Participation in ERM II in the preceding two years
The Member State must have participated in the European Monetary System’s exchange rate mechanism (ERM II) for the preceding two years without severe fluctuations and must also not have devalued its currency in that period.
5. Requirement with regard to the long-term interest rates
The Member State’s nominal long-term interest rates must not exceed the corresponding interest rates in the three Member States which have achieved the best results with regard to price stability by more than two percentage points.
The gross domestic product is the value of a country’s total output of goods, services and investments minus the value of raw materials used and any state aid.