Slovenia Only Meets Two of the Four Convergence Criteria
Slovenia only meets two of the four convergence criteria that a country must fulfil to introduce the euro, according to a report released Wednesday by the European Commission. Inflation is still too high and the country has been in the ERM II exchange rate mechanism less than the required two years.
The average inflation rate in Slovenia during the 12 months to August 2004 was 4.1 percent, according to the report, which exceeds the ceiling value permitted by the Maastricht criteria.
Since 28 June 2004, the Slovenian tolar has participated in ERM II and has been trading close to its central parity since that date, yet Slovenia has simply not been part of ERM II for long enough.
The two criteria that Slovenia does meet are the government budgetary position and the criterion on the convergence of long-term interest rates.
According to the report, the general government deficit was 2.0 percent of GDP in 2003 and government debt was 29.4 percent of GDP.
The average long-term interest rate in the year to August 2004 was 5.2 percent, the report explains. Since mid-2002, long-term interest rates have declined sharply toward the euro area level with differentials narrowing to 0.6 percentage points in the January-August period.
The Commission also notes in its report that the Bank of Slovenia act is not fully compatible with Article 109 of the Treaty and the statute of the European Central Bank (ECB).
According to the report, the formulation of the central bank's objectives will have to be changed to state that it supports the general economic policy and will make efforts to protect financial stability. The second objective - safeguarding financial stability - must be subordinated to the first one.
The Commission will publish the next convergence report in two years.
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