Entry Criteria to the Euro :: Euro Finances Economics Essays

Entry Criteria to the Euro1.Entry criteriaThe four entry criteria are band out in Article 121(1) of the EC accord.A Member put up must(prenominal) satisfy all four criteria in order to be able toenter the euro area.(Treaty quotes Sourcehttp//europa.eu.int/scadplus/leg/en/lvb/l25014.htm 02/02/2004)1.1. Price perceptual constancyThe Treaty stipulates The achievement of a high degree of exp deathiture stability ... will be apparent from a measure of splashiness which is stopping point to that of, at most, the three best-performing Member States interms of scathe stability.The inflation rate of a Member State must non master by more than 1.5%that of the three best-performing Member States in terms of pricestability for a year preceding the test for criteria compliance. TEST PASSED-----------1.2. presidential term FinancesThe Treaty stipulates The sustainability of the disposal financialposition ... will be apparent from having achieved a governmentbudgeta ry position without a shortfall that is excessive ....This stipulation gave rise to two criteria being drawn up by theCommission for the Council of Finance Ministers.A. The annual government deficit must non exceed 3% of grossdomestic product (GDP) at the end of the preceding financial yearto the test for criteria compliance.B. Outstanding government debt must not exceed 60% of GDP at the endof the preceding financial year to the test for criteriacompliance. TEST PASSED1.3. Exchange gradeThe Treaty stipulates the observance of the normal fluctuationmargins provided for by the exchange-rate mechanism of the EuropeanMonetary System, for at least two years, without devaluing against thecurrency of any otherwise Member State.A. The Member State must have controlled its exchange rate in linewith the Euro within the normal margins of the exchange-ratemechanism, without any break during the two years preceding thetest for criteria compliance.B. The Member State must not have devalued its currency against theEuro on its own initiative during the homogeneous period.The pound has been controlled in line with the normal margins of theERM and there has been no devaluation in the last two years. TEST PASSED-----------1.4. Long-Term Interest RatesThe Treaty stipulates the durability of convergence achieved by theMember State ... being reflected in the long-term interest-ratelevels.The nominal long-term interest rate must not exceed 2%of the threebest-performing Member States in terms of price stability. The periodtaken into consideration is the year preceding the test for criteriacompliance.