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Onorante, Luca --- "Fiscal convergence before entering EMU" [2004] ELECD 166; in Liebscher, Klaus; Christl, Josef; Mooslechner, Peter; Ritzberger-Grünwald, Doris (eds), "The Economic Potential of a Larger Europe" (Edward Elgar Publishing, 2004)

Book Title: The Economic Potential of a Larger Europe

Editor(s): Liebscher, Klaus; Christl, Josef; Mooslechner, Peter; Ritzberger-Grünwald, Doris

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781843769620

Section: Chapter 21

Section Title: Fiscal convergence before entering EMU

Author(s): Onorante, Luca

Number of pages: 15

Extract:

21. Fiscal convergence before
entering EMU
Luca Onorante*

1. INTRODUCTION

The monetary integration of the acceding countries will proceed in several
distinct steps, starting with membership in the European Union (EU), fol-
lowed by participation in the so-called Exchange Rate Mechanism (ERM)
II and ultimately entry into the euro area.
Already the first step, accession, implies full acceptance of the actual
and potential rights and obligations that constitute the third stage of
EMU, as well as its institutional framework. The new member states will
have to consider their economic policies as a matter of common concern,
avoid excessive government deficits and adhere to the relevant provisions
of the Stability and Growth Pact. The new member states will have to be
committed to the medium-term budgetary objective of close-to-balance or
in-surplus positions and to meeting the objectives of their convergence
programmes. Their budgetary policy and outcomes will become subject to
the Excessive Deficit Procedure and to the non-sanctioning parts of the
Stability and Growth Pact.
As far as fiscal policies are concerned, these commitments imply that
further progress needs to be made before the new member states can apply to
enter the euro area. In 2002, only the Baltic countries and Slovenia had a
deficit ratio below the Treaty reference value of 3 per cent of GDP. The other
countries recorded deficit ratios as high as 9.2 per cent of GDP.1 Yet the
process of reduction of public deficits seems to have stopped. ...