Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald
Chapter 21: Fiscal convergence before entering EMU
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), followed 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. The public deﬁcits...
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