Maastricht Criteria

prof. Oldrich Dedek
prof. Oldrich Dedek Chief coordinator for euro adoption in the Czech Republic

Published

Updated 12-12-2016
  • data update in tables
  • data update in tables
  • data update in tables

Membership in the Euro Area demands from the Czech Republic, as well as from any other EU country seeking to adopt euro as legal tender, to meet entry conditions called the Maastricht convergence criteria. Compliance with these requirements is regularly assessed by the Czech government in the document Assessment of the Fulfilment of the Maastricht Convergence Criteria and the Degree of Economic Alignment of the Czech Republic with the Euro Area. The document which is jointly prepared by the Ministry of Finance and the Czech National Bank serves as a basis for decision whether to join the exchange rate arrangement ERM II, demonstrating thus a serious intention to embark on the path towards the single European currency.

Assessment of the inflation criterion
Assessment of the interest rates criterion
Assessment of the exchange rate criterion
Assessment of the public deficit criterion
Assessment of the public debt criterion

 

ASSESSMENT OF THE INFLATION CRITERION

The Czech Republic is characterized by well anchored low-inflation environment. The objective of sustainable low inflation has been incorporated into the inflation target of the Czech National Bank, set at 2% for the annual increase in consumer prices. Sporadic overshooting of this target can be is explained by one-off effects, such as changes in indirect taxes or world-wide increases in energy and food prices. These effects tend to subside over time, without adversely affecting inflation expectations.

The Czech Republic has created favourable conditions for the fulfilment of the criterion of price stability.  

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
development of inflation
Reference value 3,1 2,6 2,7 2,2 2,5 2,9 2,8 4,1 1,5 2,4
Czech Republic 4,5 1,4 -0,1 2,6 1,6 2,1 3,0 6,3 0,6 1,2
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Reference value 3,1 3,1 1,8 1,3 0,6 1,1f 2,3f 2,8f 3,0f
Czech Republic 2,1 3,5 1,4 0,4 0,3 0,6f 1,5f 1,8f 1,9f

Source: Assessment of the Fulfilment of the Maastricht Convergence Criteria and the Degree of Economic Alignment of the Czech Republic with the Euro Area. Various years.
Note: The superscript f denotes forecasted values taken from the 2016 Report.

 

ASSESSMENT OF THE INTEREST RATES CRITERION

The Czech Republic has been retaining for a long time the confidence of the financial markets. It operates with safe levels of government debt, low inflation and surplus trade balance. These are all factors that contribute to low-risk premiums factored into government bond yields.

The Czech Republic is fulfilling permanently the interest rate criterion with a wide margin.

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
development of long-term interest rates
Reference value 6,9 6,7 6,1 6,3 5,4 6,2 6,4 6,2 5,9 6,0
Czech Republic 6,3 4,9 4,1 4,8 3,5 3,8 4,3 4,6 4,8 4,2
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Reference value 5,3 5,1 6,4 3,8 3,8 3,9f 6,1f 4,3f 3,8f
Czech Republic 3,7 2,8 2,1 1,6 0,6 0,7f 1,2f 1,5f 1,8f

Source: Assessment of the Fulfilment of the Maastricht Convergence Criteria and the Degree of Economic Alignment of the Czech Republic with the Euro Area. Various years.
Note: The superscript f denotes forecasted values taken from the 2016 Report.

 

ASSESSMENT OF THE EXCHANGE RATE CRITERION

The Czech Republic is not participating in the exchange rate arrangement ERM II. From the perspective of fulfilling the exchange rate criterion therefore it cannot be formally assessed. Due to the long-term trend appreciation of the Czech koruna, however, it can be considered that this criterion is likely to be fulfilled as opposed to the situation when the Czech currency would tend to lose its external value.

The current Czech position towards the ERM II membership is based on the view that this exchange rate arrangement should be seen as a compulsory gateway to the Eurozone and not an optimal exchange rate regime for the Czech currency. Therefore, the ERM II participation will be considered only after the government gets a firm view about the timing of the Euro Area accession.

 

ASSESSMENT OF THE PUBLIC DEFICIT CRITERION

The Czech Republic was placed under the Excessive Deficit Procedure shortly after joining the EU in May 2004. The procedure was terminated in June 2008 but in December 2009 it was re-launched with a recommendation to reduce in a sustainable and credible way the general government deficit below 3% of GDP by 2013. Between 2010 and 2013 the Czech government sought to consolidate public finances a result of which was a gradual decline in budgetary deficits of general government institutions, disregarding the one-off effects.

The medium-term outlook envisages the drop of the general governments deficits below the reference value of 3 % GDP putting thus public finances in line with requirements of the Maastricht deficit criterion. 

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
development of public deficit
Reference value -3,0 -3,0 -3,0 -3,0 -3,0 -3,0 -3,0 -3,0 -3,0 -3,0
Czech Republic -5,9 -6,8 -12,6 -3,0 -3,5 -2,6 -0,7 -2,2 -5,8 -4,8
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Reference value -3,0 -3,0 -3,0 -3,0 -3,0 -3,0 -3,0 -3,0 -3,0
Czech Republic -3,2 -4,0 -1,2 -1,9 -0,6 -0,2f -0,2f 0,1f 0,5f

Source: Assessment of the Fulfilment of the Maastricht Convergence Criteria and the Degree of Economic Alignment of the Czech Republic with the Euro Area. Various years.
Note: The superscript f denotes forecasted values taken from the 2016 Report.

ASSESSMENT OF THE PUBLIC DEBT CRITERION

The Czech Republic never had any problems with keeping the debt-to-GDP ratio below the 60 % reference value, given the low initial indebtedness. After a significant increase in public debt in 2001-2003, which was caused by accounting for government guarantees and liabilities of consolidated agencies, the general government debt levels stabilized around 30% of GDP. It started to grow sharply in 2009 after the outbreak of the global financial crisis accompanied by the economic recession.

The indebtedness of the Czech government sector still remains below the EU average but without reforms promoting the long-term sustainability of public finances the ability to comply with the debt criterion would narrow. 

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
development of public debt
Reference value 60,0 60,0 60,0 60,0 60,0 60,0 60,0 60,0 60,0 60,0
Czech Republic 25,3 28,8 30,1 30,4 29,8 29,6 29,0 28,7 34,3 38,4
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Reference value 60,0 60,0 60,0 60,0 60,0 60,0 60,0 60,0 60,0
Czech Republic 41,4 44,7 44,9 42,2 40,3 38,6f 38,5f 38,0f 37,1f

Source: Assessment of the Fulfilment of the Maastricht Convergence Criteria and the Degree of Economic Alignment of the Czech Republic with the Euro Area. Various years.
Note: The superscript f denotes forecasted values taken from the 2016 Report.