Convergence Report 2004 - Technical annex. A Commission services working paper.

Abstract

A smooth functioning of economic and monetary union (EMU) requires a high degree of convergence among the participating countries. In a single-currency area, convergence will ensure that the single interest rate set at the level of the EMU is appropriate for all its participants. Furthermore, when the economic and monetary union is hit by a shock, a high degree of convergence limits the emergence of asymmetric economic developments at the country level, to which not any longer can be responded by using the exchange rate. Recognising the importance of convergence, the Treaty specifies the criteria to be evaluated and requires the Commission and the ECB to make a report. On 1 May 2004, ten new countries joined the European Union (EU). It was an historical step in the further integration of Europe, because of the sheer size of the enlargement and because the new countries from Central and Eastern Europe had to undergo a transition process from centrally-planned to market economies. They went through comprehensive adjustments and moved a long way in converging to the rest of the EU, but important disparities remain as captured by on average lower income per capita levels. This report makes for the first time an assessment of the convergence criteria applied to the new countries.