Maastricht criteria

Inflation: the rate of inflation may not be more than 1.5 percentage points above the average rate of inflation of the three EU member states with the lowest inflation over the previous year.

Budget deficit: national budget deficits must be at or below three per cent of GDP.

Public debt: national public debt must not exceed 60 per cent of GDP. A country can still join if its debt exceeds this level provided it is falling steadily.

Interest rates: long-term interest rates must not vary by more than two percentage points from the average interest rates of the three EU member states with the lowest inflation over the previous year.

Exchange rates: exchange rates must remain within the accepted margin of fluctuation laid out in the Exchange Rate Mechanism (ERM) for two years prior to entry. (The ERM is the mechanism by which EU members linked their currencies in order to prevent large fluctuations prior to the adoption of the euro.)

The reality is that many current eurozone members do not meet all the Maastricht requirements, and many blame Europe's current debt problems on a failure to take swift enough action against countries that failed to adhere to the debt and deficit ceilings.

The European Commission estimates that the average debt burden for the euro area will be 88 per cent of GDP in 2011 and 90.4 per cent in 2012 — far above the required 60 per cent cap. Germany, the largest euro economy, is forecast to have debt equivalent to 81.7 per cent of GDP in 2011 while Greece's debt is expected to rise to 150.9 per cent of GDP. The average budget deficit for the euro area is expected to be 4.1 per cent of GDP in 2011 and as high as nine or 10 per cent in Greece.

Eurozone enforcers

There are several organizations in charge of keeping Europe's unified currency and, more broadly, its integrated monetary policies on track.

European Central Bank (ECB) — based in Frankfurt, it sets monetary policy for the eurozone, issues euro banknotes, sets interest rates, keeps inflation low.

European Council — made up of the heads of state of EU member states, it sets the EU's main policy orientations.

Council of the EU (also known as the Council or the Council of Ministers) — part of the EU legislature, made up of one minister from each member state. There are 10 council configurations based on policy areas. The economic configuration co-ordinates EU economic policy and decides whether a member state may adopt the euro.

European Commission— it is the main body in charge of enforcing EU regulations and policies and also proposes legislation. It monitors eurozone members' performance and compliance.

Eurogroup— an informal grouping of euro area finance ministers that co-ordinates and monitors economic and budgetary policies and represents the euro area at international forums.

EU member states also adopted a Stability and Growth Pact in 1997 intended to get countries to adhere to the Maastricht Treaty and maintain common EU-wide fiscal policies. It contains something called the excessive deficit procedure, or EDP, that kicks in once a member state exceeds the three per cent debt ceiling and establishes a deadline by which corrective action must be taken.

However, it also says that the procedure won't be used if the excess deficit is temporary or exceptional and within range of the ceiling. The recent debt crisis has forced the eurozone to adjust the Maastricht criteria and set new debt targets for countries like Greece, whose revised budget deficit target, for example, was upped to 7.5 per cent of GDP.

Date: 2015-12-24; view: 823